European Central Bank Governing Council Member Nagel: Inflation outlook is deteriorating, may have to raise rates in December

According to Zhitong Finance APP, Joachim Nagel, member of the European Central Bank's Governing Council and President of the Bundesbank, stated that due to the worsening inflation outlook, the European Central Bank may have to raise borrowing costs next month.

In a speech delivered in Berlin, Nagel said that even the European Central Bank's consumer price benchmark forecast published in September had assumed further rate hikes, and since then, the inflation situation has further deteriorated. Repeated spikes in energy costs have also increased the risk of knock-on effects raising the prices of other goods and services.

When European Central Bank officials reconvene in December, they may be able to better assess this risk, as they will then have access to a new set of economic forecasts extending to 2029. Nagel stated, "We will make decisions based on these forecasts. However, judging from the current situation, unless the inflation outlook improves significantly, another rate hike seems inevitable."

As inflation in the Eurozone varies, Germany’s inflation rate slows

A report published by Eurostat on Wednesday is expected to show that the Eurozone’s inflation rate rose to 4% last month, double the European Central Bank’s 2% target. However, the core inflation index, which excludes volatile items such as energy, is expected to remain unchanged at 2.5%.

The European Central Bank kept interest rates unchanged last week. Since the outbreak of the Middle East war, the European Central Bank has already raised rates twice. However, several officials have stated that further action may be necessary. Nagel expressed this view in an interview last Friday. At the time, he said the European Central Bank would act decisively if needed to bring the inflation rate back to target levels.

Nagel stated that one reason for the European Central Bank’s pause on rate hikes last week was that so far there has been virtually no sign of a second-round effect from inflation. However, he noted that rising energy prices “are increasingly likely to feed into wage demands,” “which in turn will drive prices even higher.”

Later on Tuesday, Nagel’s Dutch colleague, Olaf Sleijpen, said that although the impact from the situation in Iran has lasted longer than previously expected, so far the impact has only shown “preliminary signs of indirect effects.” However, he stated that while long-term inflation expectations “appear to be holding up quite well,” short-term inflation expectations are rising. Sleijpen said, “With energy prices remaining high, the risks of indirect and second-round effects further materializing on the upside are quite obvious. This is precisely what the central bank does not wish to see.”

Dimitar Radev, Governor of the Bulgarian National Bank and ECB Governing Council member, said Tuesday that last week’s rate pause does not mean the interest rate hike cycle is over. His Slovak colleague, Peter Kazimir, made similar comments last Thursday, saying last week’s rate decision “is not the end point.” Economists expect the European Central Bank to deliver its final rate hike next month. However, investors believe the tightening policy could continue until 2027.