The Bundesbank President does not expect prices to fall significantly until 2024.
(Photo: Reuters)
Frankfurt Bundesbank President Joachim Nagel does not anticipate rapid success in the European Central Bank’s (ECB) fight against escalating inflation. “It will be some time before inflation gets back to where it belongs, which is two percent,” Nagel told NTV in an interview broadcast on Monday evening.
“That means we’re going to go through some tough months,” he added. The ECB has already acted strongly with four rate hikes over the course of the year. “And the rate hikes will continue,” he said. “We’ve already come a long way, but there’s still a lot to do.”
At its most recent interest rate meeting on Thursday, the ECB raised the key rates by 0.50 percentage points after two jumbo rate hikes in September and October of 0.75 percentage points each. “That was a robust rate hike. And it wasn’t the last. From today’s perspective, further robust steps must follow,” Nagel told the “Stern”.
After the interest rate decision, ECB boss Christine Lagarde signaled that the rate of hikes by half a percentage point would probably be maintained at the coming meetings. The next interest rate meeting of the euro central bank will take place on February 2nd.
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As a result of the gas price brake, lower inflation rates will be seen in December, Nagel explained. “We will then see slightly higher inflation rates again in January or February next year,” he added. In the course of 2023, inflation in Germany will still be around seven percent. “And from ’24 onwards, inflation rates will drop significantly.”
Interest rate hikes would have a lag of 18 months to two years. That doesn’t happen overnight. “That’s why I have to ask for patience at this point,” said Nagel. The inflation rate in November was 10.1 percent in the entire euro area. That’s five times the ECB’s medium-term target of 2 percent inflation, which it says is optimal for the economy.
Nagel also called for the federal government to return to the debt brake in the Basic Law as soon as possible in fiscal policy. Nagel told Stern that it was right to take on more debt during the pandemic and the current energy price shock caused by the war in Ukraine. “The exception must not become the rule,” added Nagel. It was “a blessing” to have had great financial leeway over the past ten years thanks to the frugal budgetary policy, “and we must return to this policy quickly”.
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