ECB Must Avoid ‘First Order Error’ of Stopping Inflation Fight Too Early, Nagel Says

21 June 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank should be wary not to give up too early in the fight against currently high inflation, even if a side effect of monetary policy tightening is some economic pain, ECB Governing Council member Joachim Nagel said on Wednesday.

Speaking on a panel in Berlin, Nagel, who heads the Bundesbank, said that ‘we will see in the next weeks and months that inflation will come down; in this situation it would be [a] first order error to give up too early.’

The ECB should continue ‘despite the fact that we see some […] effects that we do not like’, he said. ‘But we have to see this impact that is coming from monetary policy’, he added, ‘and this is the art of monetary policy, not giving up in a situation like that.’

‘Some central banks did that in the past, and that was a mistake’, he said. ‘And I guess this is my intention, we should really prevent this for the Eurosystem.’

‘It was pretty easy [...] to do monetary policy’ up until this point in this ECB’s hiking cycle, he told the panel. ‘Now the art of monetary policy is starting… now it's getting a little bit more complicated.’

He described inflation as ‘a greedy beast’, commenting that the ECB had ‘to fight against this very greedy beast, and as inflation fighters, we have to be very stubborn because inflation is so stubborn.’

‘And I see this strong commitment within the Governing Council’, he added.