Eurozone Inflation to Stay Elevated, ECB Hikes Expected – BNP Paribas

BNP Paribas, one of Europe’s largest banks, has projected that inflation in the eurozone will remain higher than previously anticipated, prompting further interest rate increases by the European Central Bank (ECB). The forecast, based on updated economic models and market data, signals that the ECB’s tightening cycle may extend deeper into 2025 than many analysts had expected.

Persistent Price Pressures Challenge ECB

According to BNP Paribas economists, core inflation—excluding volatile energy and food prices—is proving stickier than initial projections suggested. Services inflation, driven by robust wage growth and strong consumer demand, remains a key factor. The bank’s analysis indicates that the ECB will likely raise its deposit rate by an additional 25 basis points in the coming months, with further moves possible depending on incoming data.

Implications for Borrowers and Businesses

Higher rates for longer would increase borrowing costs for households and corporations across the eurozone. Mortgage rates, already at multi-year highs, could rise further, while corporate investment decisions may be delayed. BNP Paribas notes that the ECB’s commitment to bringing inflation back to its 2% target remains unwavering, even if it means slower economic growth in the short term.

Market Reactions and Outlook

Financial markets have already priced in additional ECB tightening, with bond yields in Germany and France edging higher. The euro has strengthened modestly against the US dollar in response to the hawkish outlook. However, BNP Paribas cautions that the path forward is data-dependent and subject to revisions if energy prices or geopolitical tensions shift.

Conclusion

BNP Paribas’s revised inflation and rate hike projections underscore the ongoing challenge facing the ECB as it navigates stubborn price pressures. For investors, businesses, and consumers, the message is clear: the era of cheap money is over, and tighter monetary conditions are likely to persist. Staying informed on ECB policy moves will be essential for financial planning in the months ahead.

FAQs

Q1: Why does BNP Paribas expect higher eurozone inflation?
The bank cites persistent services inflation, strong wage growth, and resilient consumer demand as key drivers keeping core inflation above the ECB’s target.

Q2: How many more ECB rate hikes are projected?
BNP Paribas forecasts at least one additional 25-basis-point hike, with the possibility of further increases depending on economic data.

Q3: What does this mean for eurozone borrowers?
Mortgage and corporate loan rates are expected to remain elevated or rise further, increasing costs for households and businesses that rely on variable-rate financing.