ECB’s Nagel: Transformation to Greener Economy Could Impact Inflation

25 April 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Thursday said that changes required for the euro area to become a climate-neutral economy would require considerable investment, which could impact inflation and induce a monetary policy response.

Speaking at the Münster Banking Days in Germany, Nagel, who heads the German Bundesbank, said, according to a text provided, ‘Investments in the climate transition generate additional demand and can therefore lead to inflationary pressure. This requires a more restrictive monetary policy stance, which would tend to increase the general level of interest rates in the next few years.’

The net effect of climate change and climate change policy wasn’t clear yet, he said, noting that there were other elements that could also influence interest rates in the future, such as digitalisation and the aging of the population.

The ECB would continue to conduct its monetary policy to assure price stability, even if it was hard to determine where the equilibrium interest rate level would lie in the future, he said.

‘Climate change and investments in a climate-neutral economy do not call into question our medium-term goal of an inflation rate of 2%. Just like the other challenges that we have had to face in recent years or that still lie ahead of us’, he said.