Last December, we pointed out that the inflation trajectory would be the element capable of derailing the markets and this is the scenario that is currently materializing.
We must go back to the summer of 2008 to observe comparable conditions. Jean-Claude Trichet, former ECB president, was then faced with a 4% rise in consumer prices and had therefore raised rates from 4% to 4.25%.
Today, the increase in consumer prices continues to accelerate and is now over 5% in the Eurozone while it still displays negative key rates.
Central banks, in particular the ECB, were ultimately unable to maintain their position of conducting their monetary policy by looking beyond the peak of inflation and the markets were shaken by this turnaround.
Beyond the current focus on inflation, we must look at the subject of growth, which could soon be added to our concerns. Indeed, the post-pandemic rebound is decelerating and the rising prices will accentuate this slowdown, affecting purchasing power. The economic pattern showing too much inflation and not enough growth is an adverse markets scenario, and despite not being the central scenario today, it is nevertheless likely to be mentioned soon.
Of course, it is also a complex scheme for central banks to manage. Remember that in 2008, Mr. Trichet had been criticized for his rate hike when growth was already showing signs of running out of steam.
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