ECB’s Nagel: Inflation Is Coming to an End; ‘The Big Wave Is Over’

3 September 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Tuesday said that the worst part of inflation had passed and that the euro area was well on the way to achieving price stability.  

In an interview with German daily Frankfurter Allgemeine Zeitung, Nagel, who heads the German Bundesbank, was asked whether inflation was over, to which he answered: ‘Yes, in my view the wave of inflation is coming to an end.’

‘[N]ow we in the euro area are well on the way to achieving our inflation target of 2% on a sustainable basis. According to the Eurosystem forecast from June, we will achieve this by the end of 2025’, he said. ‘There will soon be slightly higher [inflation] rates again. But I think the worst is behind us. The big wave is over.’

The inflation target, however, had not been achieved yet, which meant that victory should not be celebrated prematurely, he said.

‘We must remain vigilant and keep an eye on the risks on the way back to stable prices; that is our job as a central bank’, he said.

The decision whether to reduce interest rates for a second time at the next Governing Council meeting would be based on the data, as the ECB did not operate on autopilot, he said.

‘That is why I will not make a decision until the ECB Governing Council meeting next week, when I will have a complete overview of all the data’, he said. ‘But I will say this: I see inflation on the right track.’

The German economy faced ‘strong headwinds’, intensified by geoeconomic challenges, he said.

‘For example, we export a lot to China, so any slowdown in economic development there hits us particularly hard’, he said. ‘The uncertainty we see among consumers and companies also plays a role. We need to focus on growth, and to do that, investing must become more attractive again.’

Asked about the ECB strategy review, he said that rehashing the 2% inflation target was not on the agenda, but urged that the review make clear that asset purchases should be relied on only when interest rates had reached the lower bound.

‘We must not overuse this instrument’, he said.