MNI BRIEF: Inflation Move Good News, But Risks Remain - Nagel

The slowdown of inflation in September and October, followed by November’s headline inflation print of 2.4% in the eurozone and 2.3% in Germany is “encouraging,” Bundesbank president Joachim Nagel said in a speech Thursday, but uncertainty over the outlook remains “high,” with risks “pointing upwards” due to geopolitical uncertainty and strong wage dynamics.

“To date, it can be assumed that inflation rates in the eurozone will remain well above 2 per cent this year and next. By 2025, we will hopefully be very close to the target value,” Nagel said, noting however that there is still significant monetary tightening in the pipeline. What happens next with interest rates remains an “open question,” he said, but further hikes cannot be ruled out", noting it was far too soon to think about policy rate cuts.

The Governing Council is expected to conclude a review of its operational framework early next year and there are “many decisions” to be made over the size and composition of the Eurosystem's balance sheet, Nagel said. “In my view, a leaner central bank balance sheet is desirable, above all because it provides more room for manoeuvre.”