Nagel Warns of Inflation Risks Keeps ECB Policy Flexible

European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel addressed the ongoing inflation situation during a speech in Sorrento, Italy. Nagel emphasized that the energy shock-driven inflation has not yet translated into wage growth, suggesting that the broader economy has yet to fully absorb the inflationary pressures.

Nagel highlighted several risks to the inflation outlook, including low gas storage levels, the destruction of refining capacity, and disruptions caused by drought, wildfires, and fertilizer shortages. These factors are driving up prices for refined petroleum products and food, adding to the inflationary concerns. Despite these risks, longer-term market-based and expert expectations remain aligned with the Eurosystem’s 2% inflation target.

The speech did not immediately impact the Euro (EUR), which was down 0.3% against the US dollar (EUR/USD near 1.1215) at the time of reporting. Nagel’s remarks were noted for their stronger-than-usual hawkish tone, with a 7.2/10 FXS Speechtracker score, indicating a modest shift in stance. He stressed that upward risks dominate the inflation outlook, suggesting a reluctance to ease policy quickly, which could support the Euro.

Nagel’s call for flexibility in policy rather than inaction reinforces the ECB’s bias toward keeping options open for further tightening if needed. While he acknowledged no clear signs of inflation feeding through to price and wage setting, the overall tone remained cautiously hawkish, leaning toward a more persistent anti-inflation stance.