Inflation threatens to rise again: ING warns of a self-reinforcing effect

Inflation in the eurozone appears to be gaining ground again, and according to economists at ING, this could happen faster than many investors hope. Geopolitical tensions and rising energy prices are not only increasing costs, but also changing the expectations of consumers and companies. It is precisely these expectations that can further fuel inflation.

This creates a difficult dilemma for central banks and an uncertain outlook for financial markets.

Inflation expectations are rising due to energy prices

According to economists at ING, inflation expectations have risen recently. This is mainly due to unrest in the energy market. Tensions in the Middle East and disruptions around key trade routes mean oil and gas prices remain volatile.

While there are no immediate shortages, markets are anticipating long-term disruptions. As a result, customers pay a higher risk premium for energy. This ultimately translates into higher costs for companies and households.

Inflation in the euro zone has already shown a slight increase, from 1.7 percent to 1.9 percent. If energy problems persist, ING expects this to rise to 2.5 percent.

For consumers, this simply means higher bills. For companies it means more expensive production, transport and raw materials. These costs are often passed on, causing prices to rise throughout the economy.

Why inflation can reinforce itself

What makes this situation extra sensitive is the psychological effect of inflation expectations. As soon as companies think costs will rise, they often increase their prices.

At the same time, workers try to protect their purchasing power by demanding higher wages. This creates an interaction between wages and prices that continue to push each other up.

According to ING, this effect can last for a long time, even if the original cause, such as higher energy prices, subsides later. Inflation then remains persistent.

ECB faces a difficult interest rate decision

These developments are crucial for the European Central Bank (ECB). It is not only the actual inflation that counts, but also the expectations for the future.

The recent increase makes it more difficult to reduce interest rates quickly. While lower interest rates could actually support the economy in times of expensive energy.

If inflation rises further due to energy prices and expectations, the chance that the ECB will have to raise interest rates again increases. That would put extra pressure on both consumers and companies.

What does this mean for investors and crypto?

A mixed picture emerges for investors. Energy companies benefit from higher prices, while sectors with high energy costs are under pressure.

In the bond market, higher inflation expectations lead to rising interest rates. This makes existing bonds and growth shares less attractive. At the same time, new bonds can offer higher returns.

This is also relevant for the crypto market. In times of inflation and uncertainty, investors increasingly look to alternatives such as Bitcoin (BTC). Historically, BTC is sometimes seen as protection against currency depreciation, although the market remains sensitive to interest rate developments and risk sentiment.

The combination of geopolitical tensions, rising energy prices and rising inflation expectations creates a complex situation on the financial markets, in which investors have to constantly switch gears.