ECB interest rate hike: Bundesbank: Inflation could peak in December

According to Bundesbank boss Joachim Nagel, the European Central Bank does not want to be deterred by the gloomy economic prospects in its fight against record high inflation.

ECB interest rate hike: Bundesbank: Inflation could peak in December

According to Bundesbank boss Joachim Nagel, the European Central Bank does not want to be deterred by the gloomy economic prospects in its fight against record high inflation. It cannot be ruled out that there will be lower growth rates or a recession, said the ECB council member on Deutschlandfunk. "But the bottom line is that stable prices are ultimately much more important for medium-term, long-term growth and [a] good economic outlook for the euro area." You may have to bridge a dry spell. At the moment, however, it looks as if the decline in economic output could not be so severe.

On Thursday, the ECB raised the key interest rate by 0.75 points, which is more than ever. The background is the rapid increase in consumer prices, which is mainly driven by the Russian war in Ukraine and the aftermath of the pandemic. Nagel says he is assuming that price growth will accelerate and that inflation could peak at more than 10 percent in December. For 2023, too, the annual rate of inflation will likely be far too high at more than 6 percent, he said. The ECB is actually aiming for an inflation rate of 2 percent.

Nagel said there are signs that inflation is spreading in many areas. That is why monetary policy must now clearly "take hold". ECB President Christine Lagarde has also announced further rate hikes. At the same time, the Bundesbank President was confident that the social partners would "show their responsibility" in the forthcoming wage negotiations.

The monetary watchdogs of the ECB are currently in a dilemma: They have to tighten monetary policy if they want to fight inflation. But this takes money out of the economy, which dampens growth. At the same time, there is concern that rising interest rates will be a burden for heavily indebted countries like Italy if they want to borrow fresh money from investors.

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