ECB’s Nagel: Inflation Risks Tilted to the Upside, High Risk of Expectations De-Anchoring

26 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Monday said that predominantly upside inflation risks and the threat of a de-anchoring of inflation expectations required additional increases of official borrowing costs.

In a speech in Berlin, Nagel, who heads the German Bundesbank, said that faster price growth had ‘gained in breadth’ and imposed ‘serious’ economic costs that the ECB was resolved to address.

More interest rate increases would follow the 75bp rate hike earlier this month ‘at the next monetary policy meetings’, he said. ‘This is because the risks to the inflation outlook remain tilted to the upside. The risk of a de-anchoring of long-term inflation expectations remains high.’

‘Against this background, it is clear that further decisive action is needed to bring the inflation rate to 2% in the medium term’, he said.

The magnitude of rate hikes yet to come ‘will depend on macroeconomic developments and the needs at the time’, he said. ‘We have to make sure that the high inflation ends.’

The longer the duration of high inflation, the graver the danger of a de-anchoring of inflation expectations, he said. The ECB has to prevent this, he said.

‘The Eurosystem is on course with its monetary policy towards 2% inflation’, he added. ‘I will do my utmost, with the Bundesbank's competence, to stay on this course until we reach our goal.’