On Thursday, Bundesbank President and ECB Governing Council member Joachim Nagel stated that although the growth rate of the Consumer Price Index (CPI) might be nearing the mid-term target set by officials, inflation could rise again due to continued increases in service costs, and it may remain above the target level until 2025.
During a speech in Frankfurt, Nagel emphasized, "We need to remain cautious and not lower policy rates too quickly; we are not at that stage yet. While our 2% inflation target is in sight, it has not yet been achieved."
Nagel's remarks come before the release of lower-than-expected CPI data for August from Germany and Spain, suggesting that the overall inflation rate for the Eurozone's 20 member countries might also be below the anticipated 2.2%. These data will be published by Eurostat on Friday.
Nagel stated that policymakers will continue to closely monitor forthcoming economic data, including an indicator reflecting wage growth in the Group of Twenty (G20) nations. He noted, "We are carefully evaluating these data to confirm whether they support our expectation of returning to the 2% inflation target as soon as possible."
This is Nagel's first commentary on monetary policy since the ECB's summer break. With two weeks until the next ECB rate decision meeting, several Governing Council members have hinted at a possible policy adjustment on September 12.
Portuguese central bank governor Mário Centeno stated that given the continuously deteriorating economic conditions, future decisions should be relatively straightforward. Markets anticipate two to three more rate hikes this year.
However, Dutch central bank governor Klaas Knot said on Tuesday that he is waiting for more information to decide whether to support a rate cut next month. Austrian central bank governor Robert Holzmann believes that a rate cut is not a foregone conclusion.
Nagel acknowledged these divergent views but sought to downplay concerns about broader disagreements. He said, "Turning points in the rate cycle often provoke intense discussions."
He added, "Monetary policymakers always face some degree of uncertainty when making decisions, which is why their differing opinions and independent judgments are seen as a feature rather than a flaw."
