ECB’s Nagel: ‘If There Is More Price Pressure in the Medium-Term, We Must Take Action Against It’

7 May 2024

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By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Tuesday said that any signs of higher medium-term inflation would have to be countered so as to avoid a disanchoring of expectations.

Speaking at the Joint Spring Conference 2024, organised by the Norges Bank, Danmarks Nationalbank and the German Bundesbank, which he heads, Nagel said, according to a text provided, ‘Perhaps the interplay of structural drivers of inflation… will lead to some sort of sweet spot for monetary policy – with inflation at about 2% and the level of interest rates not too high but at a safe distance from the effective lower bound. But if there is more price pressure in the medium term, we must take action against it.’

Given the impact of spot inflation on expectations, it was necessary to fight the risk of a disanchoring of those expectations, he said.

‘[E]ven a temporary accommodation of higher inflation rates bears a risk of inflation expectations becoming de-anchored’, he said. ‘We should not allow this risk to materialise.’

The ECB’s tight monetary policy had been successful, he said.

Nagel said that he was not convinced that the world economy would return to another lowflation era, it being hard to predict how strongly geopolitical uncertainties, demographics and the need of decarbonisation would affect price pressures.

‘At first glance, it may seem as if tighter monetary policy and higher interest rates would complicate coping with future challenges, especially with decarbonisation’, he said. ‘However, closer inspection reveals that price stability is a prerequisite for an efficient adjustment process.’