Bundesbank Calls for Flexibility Amid Eurozone Inflation Uncertainty

The president of the Bundesbank, Joachim Nagel, has emphasized the need for flexibility in responding to inflationary uncertainty in the eurozone. Speaking on Monday, Nagel, who is also a member of the European Central Bank (ECB)'s Governing Council, warned against inaction despite the high level of uncertainty surrounding inflation prospects. He noted that geopolitical events continue to heavily influence inflation, making a flexible strategy essential.

Nagel highlighted that the ECB's approach of basing decisions on the latest data has proven effective and will remain appropriate. He indicated that inflationary pressures in the eurozone are expected to stay intense, even excluding the volatility of energy and food prices. The risks, he said, are predominantly tilted upwards in the inflation outlook.

Despite these pressures, Nagel pointed out that there are no conclusive signs that inflation has fully translated into price and wage formation. Long-term inflation expectations continue to align with the ECB's 2% target. He defended the ECB's recent decisions to raise interest rates by 25 basis points in both June and September, bringing the reference rate to 2.5%, describing the approach as cautious yet firm.