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While December has been billed as a pivotal meeting for the ECB (after President Christine Lagarde indicated that decisions on the future of PEPP and the post-PEPP policy mix will be made at the end of the year) there are few signs of unanimity within the Governing Council on the next course of action.
- Inflation is a key sticking point with recent warnings from Jens Weidmann on the upside risks to prices, contrasting with comments made by Olli Rehn today who continued to argue that the recent inflation surge will prove temporary.
- President Lagarde may have acknowledged for the first time at the September press conference that there is a risk of second-round effects to wages, and of more persistent inflation than currently expected, but for the time being others on the GC are still sticking with the initial assessment that price pressures are transitory.
- However, with the latest headline inflation print reading 3% Y/Y for August, German breakeven inflation rates running at an eight-year high, and EUR 5y5y forward inflation swaps similarly returning to multiyear highs, pressure is likely to continue to build on the ECB's assessment of both near-term price pressures and the medium-term inflation path.