ECB and Euro Area Economy Monitor - 2026-03-18

We've now heard from three major central banks within 24 hours. The Fed gets an A for saying outright that higher oil prices are a supply-shock that raises certain prices, but can be looked through in terms of inflation worries. The only wild-card risk is through a possible unhinging of inflation expectations. The Bank of England gets an F, treating higher oil prices in a supply-shock as ipso facto inflationary. Instead of worrying about expectations, the BOE frets about wage-price spirals kicked off by higher energy prices. Risks to growth? A feature, not a bug -- higher unemployment will bring inflation down. **This is the potential thought-contagion that has rates markets panicked this morning.** Now comes the ECB. We're going to give them a B. Not the Fed's full-throated doctrine about looking through oil shocks. But also not the BOE's nutty Phillips Curve logic, with emphasis on expectations more than on spirals. Okay... full disclosure. We are grading on a curve. We all know what The Maestro would have done -- he would have already cut rates. He knew the expectations that matter are not inflation expectations, but rather growth expectations. In other words, confidence.