ECB’s Nagel: ‘We Are Still Far From Meeting Our Inflation Target’

6 September 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel late Tuesday said that the ECB was still far from having fulfilled its mandate and warned against assumptions that rate cuts would follow soon after the peak of the current tightening cycle had been reached.

In an interview with German financial daily Handelsblatt, Nagel, who heads the German Bundesbank, said, ‘To a degree, we have made good strides in the fight against inflation. However, we are still far from meeting our inflation target.’

Whether a renewed hike was necessary would be discussed at next week’s Governing Council meeting, when new macroeconomic forecasts could enter into the deliberations, he said. He declined to express a policy preference, saying merely that rates would have to remain, ‘for as long as necessary, at a level that will contain inflation.’

The data-dependent approach to monetary policy implied that a given level of interest rates would not be left in place without regard to changing circumstances, he said. ‘However, it would also be wrong to bet that rates will subsequently be quickly brought back down again after peaking’, he added.

A wage-price spiral was less likely than a price-wage spiral, he indicated, pointing to unions’ good negotiating position in the context of strong job markets.

‘Some sectors have used inflation to put up their prices sharply and thus improve their profit margins’, he said. ‘That contributed to inflation. However, unlike before, many firms are more intent on retaining their staff owing to demographic developments and the shortage of skilled labour. The number of job openings is still high. I am therefore not overly concerned about unemployment at the moment.’