Devendra Kumar
Euro zone inflation is expected to continue declining in the coming months, but at a slower rate, according to Bundesbank president Joachim Nagel. In November, inflation eased to 2.4 per cent, down from 2.9 per cent in October, surpassing market expectations for the third consecutive month. Despite this, Nagel emphasized that inflation has not yet been fully tamed, describing it as a “stubborn, greedy beast” that requires continued vigilance.
Nagel, who is a key member of the European Central Bank’s (ECB) Governing Council, warned that the fight against inflation will become more challenging in the next phase, citing the potential for higher inflation if geopolitical tensions escalate. He also expressed uncertainty as to whether interest rates have already reached their peak, stating that the ECB makes decisions on interest rates on a meeting-by-meeting basis, dependent on new data.
However, Nagel expects inflation to continue declining, albeit at a slower pace, due to the phasing out of measures to cap high energy prices in many European countries, as well as an expected continuation of strong wage growth. The outlook for inflation is tempered by the weakening of dampening base effects, which have driven inflation down in recent months.
Despite the easing of inflation, it is clear that the ECB is not yet ready to declare victory. As Nagel noted, “We have not yet won the fight against inflation” and “I can’t tell whether interest rates have already reached their peak.” The bank’s data-dependent approach means that interest rates will be adjusted as necessary based on incoming data, rather than following a predetermined path.
Nagel’s comments suggest that the ECB is likely to maintain its cautious approach to inflation, despite the recent easing of price pressures. With the potential for higher inflation and uncertainty around interest rates, it is clear that the bank will continue to monitor the situation closely, making adjustments as needed to keep inflation in check.