The head of the Bundesbank expects that further interest rate hikes will be necessary.
(Photo: Bloomberg)
Dusseldorf Bundesbank boss Joachim Nagel assumes that core inflation will weaken before the summer holidays. Nevertheless, inflation is too high and one must “do more with interest rates,” said the central banker on Monday in the “Pioneer Briefing” podcast.
Core inflation excludes the most volatile energy and food prices. In March, the value in the euro area rose to a record 5.7 percent compared to the same month last year – the overall inflation rate had meanwhile fallen significantly to 6.9 percent. The European Central Bank (ECB) sees price stability at a medium-term value of around two percent.
The development of the core inflation is of great importance, because it is considered a good indicator for this medium-term price development. What is now the fourth rise in a row could be a sign that the price surge in the euro area could last longer. European Central Bank governor Isabel Schnabel said that core inflation is now more stubborn than headline inflation, giving central bankers “some headaches too”.
ECB President Christine Lagarde expects historically strong wage growth to keep core inflation high for some time. The head of the Spanish central bank, Pablo Hernandez de Cos, also assumes that core inflation will remain high as the year progresses. The central banker said last week that developments should therefore be monitored closely.
The International Monetary Fund (IMF) recently forecast that core inflation will still be above central bank targets by the end of 2024. The central banks should therefore continue their course of raising interest rates, including the ECB for the euro zone. According to the IMF, this must continue until core inflation is under control again.
Bundesbank boss Nagel also expects that further interest rate hikes will be necessary. He does not assume “that our work is already – or even mostly – done,” he said.
The next ECB interest rate meeting will take place on May 4th. According to a Bloomberg survey conducted April 5-13, central bankers will hike interest rates by 25 basis points in May, June and July. The deposit rate would thus be 3.75 percent. According to the survey, the economists will maintain this level until the beginning of 2024.
More: ECB monetary watchdogs are increasingly inclined towards smaller May interest rate hikes