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Euro zone Inflation remains a concern for the European Central bank, according to Bundesbank President Joachim Nagel. Despite a recent rate cut, Nagel emphasized the need for Interest rates to stay sufficiently high to address inflationary pressures. Market speculation is rife about the timing of the next rate move, with December being a favored option. However, Nagel cautioned that hurdles still exist.

“Inflation is currently below our desired level,” Nagel stated during a speech in Frankfurt. Although Inflation dipped to 2.2% in August and may edge closer to the ECB’s 2% target, it is expected to rise again towards the year’s end, potentially reaching around 2.5% by 2024. Nagel highlighted the rapid wage growth as a key driver of upward pressure on private consumption and prices.

He noted that recent collective bargaining agreements in Germany have resulted in high wage increases and predicted similar trends in forthcoming negotiations. Additionally, labor shortages in the country are expected to sustain upward pressure on wages in the long term. Nagel avoided explicitly advocating for quarterly interest rate cuts but stressed the importance of “staying power” in combating Inflation.

“Depending on incoming data, the timing of potential rate adjustments may vary,” Nagel explained. “Monetary policy must remain sufficiently tight to bring the Inflation rate back to the 2% target in the medium term. We must demonstrate our commitment and resilience in this regard.”

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