ECB’s Nagel: ‘Inflation is Basically on the Retreat’

8 October 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Tuesday said that despite the expected rebound of euro area inflation this quarter, inflation was essentially on the decline.

In a speech at the regional office for Berlin of the German Bundesbank, which he heads, Nagel noted low September euro area and German inflation and the solid anchoring of inflation expectations.

‘However, core inflation and the trend in service prices in particular are not yet satisfactory’, he said. ‘We must therefore remain vigilant to ensure that the inflation rate settles at 2% in the medium term.’

However, he added: ‘Even if inflation rates are likely to rise again slightly in the coming months due to base effects: Inflation is basically on the retreat.’

The ECB in any case was ‘always prepared to do what is necessary to ensure price stability', he said.

Nptwithstanding recently negative German business sentiment data, Germany’s economy was not in the grip of a 'downward spiral’, he insisted. The euro area’s economy overall was growing and would pick up a bit in 2025, he reminded.

Wading into US politics, Nagel warned that if Donald Trump were elected president, it could result in ‘drastic tariff increases, an expansive fiscal policy and a strong restriction of immigration’, whereas if Vice President Kamala Harris were to win, one could expect ‘greater continuity in trade and economic policy.’

A Trump victory could mean ‘noticeable losses in growth in the Eurozone and in Germany’ due to the higher tariffs and the investment-dampening uncertainty associated with a Trump presidency, he said.

The economically harmful impact of Trump being in the White House could be more pronounced in Germany than in the region as a whole, he said, given the importance of German exports to the US.

Moreover, ‘the sharp swing in the US economic policy may also bring inflation risks for the euro area and Germany’, he said, given the implications of US monetary policy for the exchange rate.

‘If the Fed had to react with higher interest rates more strongly to a surge in inflation in the US than the ECB Governing Council does to the price trend here, a devaluation of the euro and consequently an increase in our import prices could be expected’, he said.