The European Central Bank last night surprised no-one with a big hike in interest rates, up 0.75% to 1.25%, joining a party that has been raging all year:

Race to rate hikes

Comments via Reuters:

“We expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period,” ECB chief Christine Lagarde said, adding that Thursday’s decision was unanimous.

“We think it will take several meetings,” she said. “How many is several? It’s probably more than two, including this one, but it’s probably also going to be less than five,” Lagarde said, suggesting that rate hikes could continue into early 2023.

“We continue to expect it to raise its deposit rate to 1.75% by the beginning of next year, but to pause the rate hike process after that because of the recession that will then be visible,” Commerzbank economist Jörg Krämer said.

“To put a lasting brake on inflation, the ECB would even have to go beyond that, because inflation is massively above its target,” Krämer added.

Indeed, European inflation is literally textbook “genie out of the bottle”, extending past 9% recently with 10% likely soon as the energy crisis bites in the lead up to the northern hemisphere winter:

European inflation

There’s more rate hikes to come with interest rate futures predicting a 50 bps hike in October and December, which should kill almost all discretionary spending on the continent and likely push the EU into recession in the first quarter of 2023.

ECB joins central bank rate hike party