The impact of rate hikes on inflation is small for now, but it will increase soon – ECB Newsletter

FRANKFURT, May 15 (Reuters) – The sharp increase in interest rates by the European Central Bank contributed little to lowering inflation in 2022, but the biggest impact is not expected until 2024, the ECB said in an article in the Economic Bulletin on Monday, confirming the long-held belief that current monetary policy is far behind.

Since July, the ECB has raised interest rates by a total of 375 basis points to contain inflation, which exceeded 10% in autumn 2022. It is expected to fall to the target of 2% only in 2025.

“The main impact on inflation is expected to be observed from 2023 onwards, peaking in 2024.” – wrote the ECB in the article.

“The policy tightening is estimated to have lowered inflation by around 50 basis points in 2022, and its impact on inflation is expected to average around 2 percentage points over 2023-2025,” the document reads.

“The impact on economic activity is accelerating, with the impact on GDP growth expected to peak in 2023, with a downward effect of 2 percentage points on average between 2022-25,” the bulletin reads.

The ECB added that the contraction of the government bond portfolio is expected to drive 10-year government bond yields up by 55 basis points between 2022 and 2025.

The original message in English is available under the code: (Balazs Koranyi)