Euro zone inflation is not where the ECB wants it, Bundesbank chief says, from Reuters

FRANKFURT (Reuters) – Inflation in the euro zone is not yet as low as the European Central Bank would like, so interest rates must remain high enough to address price pressures, Bundesbank President Joachim Nagel said on Wednesday .

The ECB cut interest rates for the second time this year on Thursday, and markets are now trying to guess when the next move will come, with most bets focused on December and some betting on another cut in October.

Nagel didn’t want, like some of his colleagues, to close the door in December, but noted that obstacles remained.

“Inflation is currently not where we want it to be,” he said in a speech in Frankfurt.

While inflation eased to 2.2% in August and could fall even closer to the ECB’s 2% target this month, it is likely to rise again towards the end of the year and could end 2024 around 2 .5%.

A key issue is that wage growth remains brisk and could put upward pressure on private consumption and thus prices.

“In Germany, large wage increases have been agreed in the most recent collective agreements,” Nagel said. “And new relatively large agreements are also expected in future negotiations.”

He added that Germany’s labor shortage is likely to keep upward pressure on wages even in the long term.

While Nagel declined to say he favors only quarterly interest rate cuts, like other prominent conservatives, he argued for “holding power” to beat inflation.

“Depending on the data received, the time frames between potential steps may vary,” he said. “This is because the monetary policy stance needs to remain tight enough for long enough for the inflation rate to return to the 2% target over the medium term.

“Now we have to show that we have enough staying power,” Nagel said.