Podium vs Print: "look through" and 3.8%

The podium. “The energy shock is too large to ‘look through’ but a measured response remains appropriate to keep inflation in check,” Christine Lagarde told the IMF’s steering committee ten days ago¹. In the same statement she said long-term interest rates have risen notably since September, and that this “will slow growth and reduce pass-through by more than projected”¹.

The print. Euro-area inflation was 3.8% in September, according to Eurostat’s monthly data, after 3.2% in August and 1.9% in February, the month the war began². The ECB’s deposit rate has gone from 2.00% to 2.50% in two steps, in June and September⁵.

The gap. Desk arithmetic: inflation at 3.8% against a deposit rate of 2.50% leaves the real policy rate at about minus 1.3 points. On the face of it, money is still cheap. The president’s answer sits in her own text: the bond market has done part of the work, and wages have “so far shown no material response to the energy shock”¹. MUFG Research calls the outlook “a more balanced trade-off” and expects a hold on Thursday and a hike in December³. Of 32 research houses counted by FinChiefs, all 32 expect a hold⁴.

The verdict. Both are true. The print measures what has already happened at the petrol pump and on the heating bill. The podium is about what has not happened yet: higher prices turning into higher wages and then into higher prices again. Core inflation, which leaves out energy and food, is 2.5%¹. For you, the useful number on Thursday is not the rate, which is expected to stay put, but the sentence after it. Nothing here is investment advice.