So far core inflation has fallen by just 0.4pp from its peak – so at 5.3% we are far from being able to conclude this is ‘job done’ on monetary tightening. The ECB will be watching core and service prices intently over the coming months – particularly the monthly momentum in those series – in order to judge whether pressures have eased sufficiently to end the hiking cycle.

We expect the ECB to raise rates twice more from here, i.e. 2x25 bps hikes in June and July for a terminal rate of 3.75%. Thereafter, assuming core price momentum has slowed sufficiently, we think the ECB may call it a day on the hiking cycle. Inevitably at that point, markets will be questioning when the first cut might be. We continue to see this as being far later than markets expect and not until the very end of 2024.