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Inflation in the euro zone is still largely exogenous, but it will become endogenous
In the first quarter of 2022, inflation in the United States is mainly endogenous (it results primarily from rising wages and corporate profit margins), while inflation in the euro zone is mainly exogenous (it results primarily from rising commodity prices). As long as inflation is exogenous, the central bank has no reason to intervene. But the ECB may rightly ask whether euro-zone inflation might just become endogenous. Indeed, it is highly likely that wage earners in the euro zone will demand a wage catch-up to offset their loss of purchasing power and that wages will rise much faster in the euro zone in 2023 than in 2022. If the ECB expects this to happen, then it should start combating future endogenous inflation today. But this is complicated by two factors: endogenous inflation has not yet been observed ; and the war in Ukraine makes it difficult to tighten monetary policy in Europe.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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