Further Significant Hikes May Be Necessary To Contain Sticky Core Inflation, Nagel Says
24 February 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel said on Friday that core inflation looked set to remain high for a prolonged period of time in the euro area, potentially necessitating further significant interest rate hikes.
Speaking at a joint press conference with German Federal Minister of Finance Christian Lindner at the meeting of G20 finance chiefs in Bengaluru, India, German Bundesbank President Nagel said that ‘all the evidence seems to suggest that beyond March, the core inflation rate will remain at a very high level and will only come down slowly.’ He couldn’t rule out that ‘further interest rate steps - significant interest rate steps - beyond March will be necessary.’
The outlook for the ECB’s March meeting was ‘really quite clear’, he said. ‘I expect a robust rate move also for the March meeting, and then we will see how the March projections, the new numbers, turn out.’
Due to the fact that underlying inflation in the Eurozone ‘remains much too high and has not yet subsided’, it was ‘necessary and right that monetary policy continues to tighten the reins so that high inflation is reduced in a timely and sustainable manner', he said.
‘Although European gas and electricity prices have fallen significantly since the autumn, the strong upward pressure on consumer prices in the euro area is only weakening slowly’, he said. ‘In particular, the underlying price pressure remains far too high and has not yet eased.’
He warned that ‘the cardinal mistake now would be to underestimate the persistence of high inflation and to ease off too soon with monetary tightening; that must not happen.’
The global economy was ‘on a restrained expansion course, and fears of recession are increasingly receding into the background, though very high inflation rates continue to have a negative impact', he said.