Nagel Calls for Firms, Politicians and Unions To Contribute to Inflation Fight

15 May 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Governments, firms and social partners must support the European Central Bank in its pursuit of price stability, Governing Council member Joachim Nagel said on Monday.

Speaking at a symposium hosted by the Institute for Banking and Financial History, Nagel, who heads the Deutsche Bundesbank, said that ‘an old message from the Bundesbank still holds true: a stability-oriented monetary policy can only succeed in the long term if other actors in politics, economy, and society also contribute to this stability goal.’

Monetary policymakers needed to ‘recognize the limits of our influence as central banks’, he said. It was therefore necessary that ‘other actors must also contribute their part to swiftly end the current phase of high inflation.’

The political environment could contribute to the fight against inflation ‘by maintaining sound public finances, reliably limiting debt and reducing excessive indebtedness.’ Furthermore, governments should ensure ‘that fiscal policy measures do not generate additional price pressure’ and implement ‘effective competition policies to limit excessive market power among companies, as such market power can lead to inflated prices', he said.

Firms in the private sector should ‘moderately and justifiably raise their price demands’ and ‘not seize the opportunity for short-term windfall profits’, he argued. Meanwhile, labour unions and employers' associations needed to ‘show the prudence for which they have rightfully been praised in the past.’

Monetary policy ‘must confront high inflation decisively by raising interest rates’, he said. He cautioned that ‘monetary measures take time to fully take effect’, meaning that central banks needed ‘to advocate for patience.’

‘Achieving sustainable price stability in the euro area will not be without effort’, he said.

The ECB would continue to fight high inflation with ‘commitment and consistency’, he said.

Nagel told the conference that if central banks kept up their efforts and political and economic authorities also fulfilled their responsibilities, 'we will soon leave behind the phase of high inflation.’