The European Central Bank (ECB) still considers the current inflation shock to be medium-sized, which requires some policy action but not aggressive moves, and it will get price growth back to 2% in the next year or so, ECB chief economist Philip Lane said.

Inflation Outlook

According to Lane, the ECB will closely watch whether surging energy costs generate second-round price or wage impacts, which could threaten to perpetuate inflation. The ECB has not seen such effects so far but has argued that the longer energy prices stay high, the more likely it was for second round effects to become evident.

Financial markets expect at least two more rate hikes from the ECB, with moves fully priced in by October and March. The ECB left interest rates unchanged on Thursday but offered plenty of hints that more policy tightening will be needed.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.