ECB Must Remain Alert as Europe's Inflation Wave Has Not Fully Passed, FAZ Warns

The Quick Take

• FAZ Finanzen warns that the ECB must stay vigilant as inflation in Germany and the eurozone has not yet fully normalised despite recent moderation.
• The analysis argues that elevated inflation was not a one-off event but reflects structural factors — energy transition costs and labour market tightness — that could reignite price pressure.
• A premature ECB rate cut cycle risks allowing inflation to re-accelerate, repeating the policy error of the 2021-2022 period when rate action was delayed.

Germany's FAZ Finanzen editorial board makes the case that European investors and policymakers should resist declaring victory on inflation prematurely. The core argument — that the inflationary episode of 2022-2025 was not a temporary supply-side shock but reflects structural changes in the European energy market and labour cost dynamics — is directly relevant to ECB rate policy expectations. Germany's energy transition (Energiewende) continues to embed higher industrial and consumer energy costs into the price level, even as headline gas and oil prices have declined from their 2022 peaks. Labour market tightness, exacerbated by Germany's demographic ageing, maintains wage growth above historical norms, creating ongoing services inflation that is more persistent than commodity-driven goods inflation.

The ECB implications are the primary market angle. European bond markets have priced a gradual ECB rate normalisation path, with the deposit rate expected to decline to approximately 1.75-2.0% by end-2026. If FAZ's structural inflation argument proves correct — and H2 2026 data shows a re-acceleration of core eurozone CPI toward 3.5%+ — the ECB would face a policy dilemma: pause rate cuts or reverse course, either of which would sharply re-price Bund yields and compress equity multiples across the DAX and Euro Stoxx 50. European banks, which benefit from higher net interest margins in an elevated-rate environment, would outperform, while rate-sensitive sectors (utilities, REITs, high-yield credit) would face headwinds.

Germany's inflation structural story is also relevant to the currency market. A more hawkish-than-expected ECB — necessitated by persistent inflation — would support the euro against the dollar at a time when US rate cuts may accelerate if the US economy softens in H2 2026. EUR/USD has been range-bound between 1.08-1.14 for much of 2026; a divergent central bank outcome (ECB staying higher for longer vs. Fed cutting) could push it toward the top of this range. Investors with eurozone fixed income exposure should carry duration with caution, and those with European equity exposure should monitor August-September core CPI prints for early signals on whether the FAZ thesis is materialising in the data.