ECB’s Nagel: German Inflation to Return Gradually to 2% Only From 2026 Onwards

13 December 2024

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that German inflation would gradually return to the level of 2%, but only starting in 2026.

According to a press release announcing the latest macroeconomic forecasts of the German Bundesbank, which Nagel heads, HICP inflation in the euro area’s large economy would average 2.4% next year after 2.5% this year, despite the context of weak growth.

The persistence of inflation at such a level reflected price pressures for food and services, the Bundesbank said.

‘From 2026 onwards, however, the inflation rate in Germany is projected to gradually return to 2%’, Nagel said. ‘This is thanks to two factors in particular: the previous monetary policy tightening and decreasing price pressures from labour costs.’

For the time being, an economic recovery was not in sight, according to the German central bank.

‘The German economy is not only struggling with persistent economic headwinds, but also with structural problems’, said Nagel.

Industry, exports and investment were all hard hit, the Bundesbank said.

‘The labour market, too, is now responding noticeably to the protracted weakness of economic activity’, said Nagel. This was hindering private consumption, which was no longer seen driving a recovery, he said.

‘Although private consumption is set to grow throughout, it is no longer as dynamic as previously expected’, he said.

Calendar-adjusted real German GDP would decline 0.2% this year and rise by 0.2% next year, according to the Bundesbank. Growth would improve to 0.8% in 2026 and 0.9% in 2027, the Bundesbank said.

‘At present, the biggest source of uncertainty for the forecast is a possible global increase in protectionism’, Nagel said. Geopolitical tension, structural changes and fiscal and economic policy were additional sources of uncertainty, the Bundesbank said.

Current risks were tilted overall in the direction of yet weaker growth and yet higher inflation, the Bundesbank said.