Bundesbank President Joachim Nagel stated that a further interest rate increase by the European Central Bank is very likely necessary shortly before Christmas.
Speaking in Berlin on Tuesday evening, Nagel noted that while the ECB Governing Council refrained from another rate step at its meeting the previous week—citing few signs of second-round effects such as sharp wage demands—the inflation outlook has recently deteriorated. From today's perspective, there will likely be little way around a rate hike if the inflation outlook does not improve significantly, Nagel explained according to his prepared text.
The inflation rate in the euro area rose to 3.8 percent in September, driven primarily by energy prices that climbed due to conflicts in the Middle East. Monetary policy must prevent this from turning into a broader price surge that could ultimately drive up the prices of other goods and services and feed into wage demands, Nagel warned, adding that this would push prices higher in turn.
The ECB views an inflation rate of two percent over the medium term as ideal for the euro area economy. The core task is to secure price stability, a goal that remains a considerable distance away, according to Nagel.
The ECB leadership will decide on monetary policy and interest rates again on December 17. The decision will also be made on the basis of new forecasts extending into the year 2029 for the first time.
In his speech, Nagel also advocated for greater European unity to succeed in a changing world, stating that Europe must present a united front to hold its ground and determine its future sovereignly amid a harsher geopolitical climate and increased international competitive pressure. European integration is particularly urgent in the single market, as well as in defense and foreign policy, with Germany and France playing a key role as an indispensable engine for the entire continent.
