On November 14, European Central Bank Governing Council member and Bundesbank President Joachim Nagel said the ECB will likely need to raise interest rates further, citing persistently rising energy prices and mounting inflationary pressure.
He warned that the longer inflation stays elevated, the greater the risk that price increases spread into wages and other goods and services.
Nagel noted that the ECB's September baseline projections had originally expected inflation to peak around the end of this year and to remain above the 2% target for an extended period through 2027.
But the inflation outlook has since deteriorated further, with energy prices now far above the path assumed at that time, and the current economic situation is approaching the unfavorable scenario in the September projections.
Nagel said underlying inflation remains high, and shorter-term inflation expectations have also moved up along with the rise in headline inflation.
Still, Europe's economy has so far shown some resilience.
He stressed that as long as the ECB takes timely and appropriate monetary policy action, the possibility of a repeat of the high-inflation situation of 2022 remains relatively low.
Comments