The ECB may tighten its tone in light of the growing risk of an inflationary spiral
The EUR/CHF price may rise above parity in the coming weeks after failing to recover above this threshold at the end of October. In fact, the ECB may be even more hawkish in the coming weeks despite the rising risk of recession due to growing signs of an inflationary spiral in the euro area.
Inflation, which started last year with a rise in consumer goods and energy prices, has spread to other parts of the economy since the start of the year, impairing household power purchases. The price-wage loop now appears to be forming as wage earners respond to this high inflation by demanding higher and higher wages.
Wage growth is thus accelerating to 4.1% over a year in the euro area, the highest rate since at least 2010, which should push the ECB to introduce even more restrictive monetary policy. If the ECB did not tighten its tone, it would not only risk an uncontrollable spiral of inflation, but real interest rates in the euro area would remain even lower than in Switzerland and the US, adding to pressure on the single currency.
On the other side of the Alps, Swiss inflation remains moderate at just 3%. The SNB therefore has no need to speed up its monetary policy tightening.
EUR/CHF Daily Price Chart – Key Levels