Bloomberg reports that the market is now pricing in a 10-basis-point increase to the European Central Bank’s deposit rate in around three year’s time, just a third of what was expected in May. 

But forward-looking gauges show consumer-price gains will still fall short of the ECB’s target by then, which suggests expectations for any tightening will have to be pushed back even further.

President Christine Lagarde said last month that rates wouldn’t rise until inflation of 2% comes sustainably into sight. The shift in forward guidance carries even more weight now that a surge in coronavirus cases threatens the recovery from the pandemic. 

Current pricing is particularly jarring considering that, in December, a 10-basis-point cut was priced in for early 2022 -- a sign of how engrossed the market became with the prospect of an economic rebound. 

While consumer-price gains jumped to 2.2% in July, the fastest pace since 2018, ECB policy makers have taken pains to stress the increase is transitory. Swaps show inflation will be running below 1.7% in 2024.