ECB’s Nagel says December rate hike ‘rather obvious’

Bundesbank President Joachim Nagel said the European Central Bank has a strong case to raise interest rates again in December, even though energy prices have fallen since the US midterm elections. In a Bloomberg Television interview in Riga on Tuesday, November 10, he said inflation is "too high." "It seems to be a rather obvious outcome that we have to do something on top of what we did already," Nagel said.independent.ie

His comments add to a growing chorus of policymakers pointing toward a hike at the ECB's last meeting of the year. On the same day, ECB Chief Economist Philip Lane warned that lower energy costs may not end the inflation threat.bloomberg.com

Energy relief, but no complacency

Nagel called the drop in energy prices since the midterms good news. He also said market expectations matter but do not drive the ECB's decisions, adding, "We'll do what's needed to return inflation to 2%," according to FXStreet. He described current policy as "at the upper bound of neutral territory." If inflation heads "much above our 2pc target," he said, "we have to go into restrictive territory." He declined to speculate on whether a larger move than usual might be needed, Independent.ie reported.tmgm.com+1

Economists expect the deposit rate to rise by a quarter point to 2.75% in December. That would be the ECB's third increase since the Middle East conflict began. The December meeting will also bring staff projections that reach 2029 for the first time. Nagel signaled the hike a week earlier, telling a Berlin audience on November 3 that a December increase was "very likely necessary," Reuters reported.reuters.com+1

Lane flags second-round risks

Speaking at a conference in London, Lane said falling fuel costs could open a gap between headline and core inflation. "If energy prices reverse – and they're already reversing in the last week, if that continues – you could see headline (inflation) falling but core inflation moving up as the second-round effects from what's already happened percolate," he told the audience. He added that "it would be a surprise if there are no second-round effects." He said underlying inflation not having moved yet reflects "the usual delayed response," and that he would put a "high bar on directional forward guidance now," FXStreet reported.fxstreet.com+1

Inflation at a three-year high

Preliminary figures show euro-area inflation rose to 4.0% in October from 3.8% in September, its highest in three years, according to Inderes. The ECB held rates on October 29, but President Christine Lagarde said the Governing Council had debated a hike and would make its decision in December with a "special focus on underlying inflation," according to the ECB's press conference transcript.ecb.europa.eu+1

Nagel said the recent rise in consumers' inflation expectations should be "a kind of an eye opener" against complacency. "We have to be very vigilant," he said.independent.ie