Bundesbank chief says no second-round effects from high euro zone inflation yet

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Bundesbank President Joachim Nagel, a member of the European Central Bank's Governing Council, said on the 5th that while inflation in the euro zone is high and upside risks dominate, the surge in energy prices has not yet fed through to wages and other prices. Speaking at a precious metals conference in Sorrento, Italy, Nagel noted that "at present, there are no clear signs that inflation is spilling over into price and wage setting," and said longer-term market-based expectations and expert forecasts remain consistent with the Eurosystem's 2% inflation target. At the same time, he warned that price pressures are likely to remain strong even excluding volatile food and energy prices, and said gas prices are particularly vulnerable because storage levels are low, meaning Europe may need to buy larger volumes during the winter. He added that the loss of refining capacity has sharply pushed up prices of refined oil products, while drought, wildfires and fertilizer shortages also pose risks to food prices. Markets expect the ECB to raise the deposit rate by another two to three times over the next year, but Nagel stopped short of endorsing market expectations, saying only that the ECB needs to remain flexible and base its decisions on incoming data.

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Nagel says no second-round effects yet but upside risks dominate and markets expect two to three more ECB hikes, supporting higher policy rates.

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