Joachim Nagel, President of the Deutsche Bundesbank and a member of the Governing Council of the European Central Bank, announced in a speech in Berlin that the bank will likely raise interest rates in December. This decision will be made due to worsening inflation conditions, and new economic forecasts will be presented at next month's meeting.
Impact of Rising Energy Prices on Inflation
Nagel noted that the fundamental forecasts for consumer prices presented in September indicated another interest rate hike, and the situation has worsened since then. He referred to the repeated increases in energy prices and stated that this increase could spill over to other prices as well. He said: "We will make our decision based on these forecasts."
European Central Bank's Response to Economic Conditions
The European Central Bank kept rates unchanged last week, having raised them twice since the start of the war in Iran. Several officials from the bank indicated that further actions may be necessary. Nagel pointed this out in an interview with Bloomberg. Economists predict that the final rate move will occur next month, while investors expect this trend to continue until 2027.
Dimitar Radev, a Governing Council member from Bulgaria, said on Tuesday that last week's pause does not mean the end of rate hikes. Peter Kazimir, his Slovak counterpart, also stated that Thursday's decision was not the "finish line." Eurostat is expected to release a report on Wednesday indicating that inflation in the euro area reached 4 percent last month, which is double the European Central Bank's target. The core measure, which excludes volatile items like energy, is expected to remain at 2.5 percent.
Nagel mentioned that one reason for last week's pause was the absence of cyclical effects at present. He added: "Rising energy prices may gradually transfer to wage demands as well." He also pointed out that this could lead to price increases.
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