Deutsche Bank's Chief European Economist analyzes inflation risks in Europe, with rising natural gas prices posing stagflation risks

Deutsche Bank's Chief European Economist Mark Wall believes that inflation risks are increasing, and the likelihood of a rate hike in December is higher than not raising rates at all. The market expects the probability of a rate hike in October to be about 49%, rising to 89% by the end of the year. The rise in natural gas prices constitutes a negative supply shock, driving up energy, transportation, and commodity prices in the short term, forcing the European Central Bank to guard against secondary inflation, and putting pressure on business costs and residents' actual purchasing power, resulting in subsequent growth weakening. Europe has entered a policy window where inflation rises first and growth falls later. Raising interest rates and raising short-term interest rates may not necessarily sustain support for the euro and long-term yields.