ECB, firm rates and eyes on inflation

Big focus on inflation. This is all the European Central Bank can and should do at its April meeting. It will keep the official cost of credit at a standstill - these are the analysts' expectations -: at 2% the rate on deposits, at 2.15% the refinancing rate. The economic shock on oil prices - and in perspective on economic activity - all exogenous is too recent: it is not clear how long it will last, and what medium-term effects the closure of the Strait of Hormuz, a strictly military fact, and the damage to crude oil extraction and refining plants may have.

At the moment the central banks - all of them - can only 'look through' the price increase. Eurostat, very promptly, has already recorded an initial effect: inflation jumped to 2.6% in March, from 1.9% in February, with core inflation, however, remaining substantially stable at 2.3% against the previous 2.2%. Strictly speaking, this is an increase in relative costs, which is certainly not insignificant for households and companies, but which cannot be attacked by monetary policy, except at the cost of placing an additional 'burden' on the balance sheets of economic operators.

The detail of core inflation does not show any particular novelties. The dynamics of service prices remains rather stubborn, no longer standing at the 4% of a few months ago, but struggling to fall below three percent. Product prices, on the other hand, remain rather cold (0.5 per cent) and do not detect any indirect or even secondary effects at the moment - too early, in any case.

Inflation expectations are also not giving any overly worrying signals. Market measures - which may contain elements 'external' to expectations such as the risk premium and the liquidity premium - rose relatively quickly in the first few days of the war and rose from 2.08%, very close to the target, to 2.2%. Nothing dramatic, then, as it soon returned to 2.15, in line with the average of the last two years, although slightly above the long-term average, which - unsurprisingly - stands at two per cent. It is also true, however, that, according to the ECB itself, consumer expectations of inflation jumped in March: the 12-month median rose from 2.5 per cent to 4.0 per cent, while 3-year expectations increased to 3.0 per cent: these are important signs, not to be underestimated, even if only in perspective, as elements that could over time affect long-term expectations, the most relevant ones.

There is nothing, in short, that can create a sense of urgency at the moment. Not a price flare-up, but not even a pain for economic activity that would have to be such - for it to trigger an ECB reaction - as to affect the cost-of-living dynamic. Only the recent bank tightening could generate some alarm - because it could affect the monetary policy transmission chain - but not necessarily in the short term. The ECB can only repeat its position: firm rates and decisions taken 'on a case-by-case basis', even at the risk - as many complain - of a certain operational opacity.