Analysts expect the European Central Bank to launch aggressive series of rate hikes and sacrifice growth thanks to the rising cost of living, which is threatening to soar even higher. 

ECB Executive Board Member Isabel Schnabel’s speech in Jackson Hole hinted at what to expect from the upcoming policy meeting. With inflation in the eurozone projected to skyrocket to at least 10% in the coming months and the risk of consumer prices surging higher, a “jumbo” rate hike of 75 basis points on Thursday is certainly a possibility.

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“As frontloaded hikes can have a bigger impact on inflation expectations than a more gradual approach, a 75bp move could make sense,” said ECB watcher and Berenberg’s Chief Economist Holger Schmieding in a research note. 

“Although it is largely priced in, it could still exacerbate strains in the bond markets.”

Inflation in the eurozone rose to 9.1% in August, and with more pressure on energy prices, it’s set to reach double-digit levels in the coming months.

“While governments will partially ‘foot the bill’, there are limits to what extent the private sector can be shielded from this income shock,” said Dirk Schumacher with Natixis in a research note to clients. 

“The drop in consumer confidence to a record low over the last months indicates that households are aware of these limits with respect to government support. There is also increasing evidence that companies in energy-intensive sectors are reducing production.”

Because of the inflation outlook, the ECB is expected to sacrifice growth to keep inflation expectations anchored, as this is the bank’s core mandate.

“A key take away from recent comments by ECB officials is that the hiking cycle will be less sensitive to recession than we thought,” said Deutsche Bank’s Chief Economist Mark Wall in a research note.