ECB’s Nagel Sees Inflation in ‘Calmer Waters’ But Caution Needed

Joachim Nagel Photographer: Alex Kraus/Bloomberg Photo by Alex Kraus /Bloomberg

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(Bloomberg) — The European Central Bank has brought inflation under control but mustn’t become complacent due to the highly volatile geopolitical backdrop, according to Governing Council member Joachim Nagel.

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Speaking on the sidelines of the ECB’s annual retreat in Sintra, Portugal, Nagel said the recent swings in energy prices due to Israel’s war with Iran highlight that the ECB must be careful.

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“In the current situation, we are in calm waters,” the Bundesbank president told Bloomberg TV on Tuesday. But “complacency is not the way we should see it.”

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Investors and analysts are awaiting clues on what’s next for interest rates after officials decreased them for the eighth time in a year in June and President Christine Lagarde signaled the easing campaign is nearing its end. While some policymakers favor more cuts to boost the economy, others urge caution — citing price pressures down the line.

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July’s rate meeting is expected to result in a pause in monetary easing. Nagel said he’s looking to the next round of quarterly economic projections, in September, to decide where borrowing costs should go beyond that. 

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“We have to be prepared for everything,” he said. “I will see what the data will tell me in autumn, and then we will see.”

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Figures later Tuesday are expected to show an uptick in euro-area inflation in June — to 2% from 1.9% — according to a Bloomberg survey – though that still matches the ECB’s goal. Officials expect the economy to gain momentum in the coming years, but headwinds range from US trade policies to wars in Ukraine and the Middle East.

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Nagel said he hopes tariff negotiations are “coming to a good end,” but that in the meantime more stable commodities markets represent an improvement from the recent past. 

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“We’re in a much better situation than a couple of weeks ago,” he said.

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He called the euro, which has gained almost 14% against the dollar this year, “only one factor” in the ECB’s thinking on inflation, describing its current level as “not exceptionally high” historically.

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“As a central banker we have to look at it,” Nagel said.

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Live from Sintra: Bloomberg’s Francine Lacqua moderates the policy panel at the ECB Forum featuring Jerome Powell, Christine Lagarde, Andrew Bailey and Kazuo Ueda. From 2:30 p.m. London time on July 1 on Bloomberg Television, TLIV on the Terminal and Bloomberg.com.

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—With assistance from Jana Randow.

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