Commenting on the market reaction to Eurozone inflation figures, Marc Cogliatti, head of global capital markets at Validus Risk Management, said: “Inflation continues to remain a hot topic across the Eurozone following the stronger than expected prints from Germany (7.9%) and Spain (8.5%). 

“The headline reading showed prices rising 8.1% year-on-year across the wider currency block, exceeding analysts’ expectations for a rise of 7.8%. Unsurprisingly, sharp rises in food and energy costs were a dominant theme, but even the core reading (excluding food and energy) showed prices rising 3.8%. This will be particularly concerning for ECB policy makers as they try to balance the risks of fragile growth and soaring price pressures. 

“At this stage, both interest rate expectations and the Euro are broadly unchanged, but the data certainly supports the argument for tighter monetary policy in the second half of this year. The market is currently pricing in quarter point hikes for each of July, September, October and December’s meetings and suggests that there is plenty of scope for further tightening in the first half of 2023.”