Summary

• The European Central Bank hiked interest rates at its June meeting, tightening policy for the first time since September 2023.
• Consumer price inflation has already risen to 3.2%, according to official estimates for May, its highest since September 2023, rising further above the central bank’s 2% target.
• The ECB has therefore hiked interest rates heading into a downturn, focusing on the need to reassure households and markets that its priority is to ensure higher inflation does not become entrenched.

PMI survey data accurately signalled the hiking of interest rates by the ECB at its June meeting, with past policy changes indicating that the tightening of policy was consistent with prior decision making behaviour. However, whether further