ECB’s Nagel: Inflation Ship Is Not Yet Safely in the Harbour, but Port Is in Sight

22 October 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Tuesday said that a return to price stability in the euro area was in sight.

In a speech at Harvard University in Cambridge, Massachusetts, US, Nagel, who heads the German Bundesbank, said, ‘Fortunately, the worst is behind us, and inflation in the euro area is heading back to the Eurosystem’s target. We have not brought the inflation ship safely back into the 2% harbour, but the port is in sight.’

Nagel, whose speech was primarily devoted to explaining why he did ‘not see a compelling case for introducing’ US Federal Reserve-style dot plots for the Eurosystem, argued that anonymised dot plots of ECB Governing Council members would lead to attempts by observers to discern the identity of each dot’s author.

Whereas speeches, which also reveal individual policymakers’ position, are given voluntarily, dot plots would in effect ‘force all Governing Council members to regularly articulate their perspectives on the future trajectory of interest rates’, he objected.

This could compromise monetary policy’s independence if national stakeholders then applied pressure on corresponding Council members to support policies deemed agreeable, he said.

‘I am confident that, even if we were to publish dot plots, every member of the Governing Council would continue to act independently and in the best interests of the entire euro area’, Nagel said. ‘However, I believe we are well advised not to put ourselves in a situation that might increase pressure on us to act in ways others want us to.’

Moreover, there was no clear evidence that dot plots would constitute an improvement in terms of communication, he said.

In particular, as dot plots only indirectly express uncertainty regarding inflation prospects, other options could be superior, he said, citing ‘new measures [of uncertainty], such as scenario and sensitivity analyses, as well as improved fan charts.’