ECB’s Nagel: Not Fully Convinced About Sustainable Return to Inflation Target

24 April 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Wednesday said that high core inflation and strong wage growth made him sceptical about the speed with which price stability would be restored.

Speaking at the DZ Capital Markets Conference in Berlin, Nagel, who heads the German Bundesbank, said, according to a text provided, ‘At present, I am not fully convinced yet that inflation will actually return to target in a timely and sustained manner.’

‘Core inflation remains high, especially inflation in the services sector. Driven by continued strong wage growth, it is more persistent than goods inflation’, he elaborated.

The recent reduction in inflation was mostly due to low energy prices, he said, but ‘monetary tightening is also bearing fruit.’

‘According to the latest ECB staff projections, we expect the inflation rate to return to 2% on average in 2025. We are on a good path, but risks remain’, he said.

All monetary policy decisions would continue to follow a meeting-by-meeting and data-dependent approach, he said, noting that by June, Q1 wage growth data would be available and enter into the new projections.

‘If they help to increase our confidence in a timely and sustained return to 2%, I would be in favour of a rate cut in June’, he said.

A first rate cut June did not necessarily imply that others would come next, he said.

‘However, such a step would not necessarily be followed by a series of rate cuts’, he said. ‘Given the current uncertainty, we cannot pre-commit to a particular rate path.’