ECB’s Nagel: Necessary to Slow Down Economy to Tame Inflation

8 November 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Wednesday said that unpopular measures were necessary to achieve price stability.

In a speech at the German Embassy in London, a text of which was posted to the website of the German Bundesbank, which he heads, Nagel said he understood that ‘slowing down the economy to tame inflation is unpopular.’

‘But, to achieve price stability, supply and demand have to be re-aligned. And this meant, and still means, that aggregate demand must be restricted’, he said.

The real economy was currently slowing down due to tighter financing conditions, he said.

‘According to the flash estimates for October, headline inflation has declined significantly to 2.9%, but core inflation is down only somewhat at 4.2%. Real activity is subdued’, he said. ‘And parts of our previous rate hikes are still being transmitted to the real economy and to price developments.’

The ECB expected wage increases to affect prices but saw no evidence of a ‘self-reinforcing spiral’, he said.

‘We will continue to carefully monitor whether the price- and wage-setting behaviour will normalise and align more closely with our inflation target’, he said. ‘Otherwise ... the Eurosystem will be called to action.’