Bundesbank chief says inflation to remain high until 2024 – DW – 12/20/2022

The president of the German Bundesbank on Tuesday announced that it would take over a year for inflation to fall to an acceptable level.

Joachim Nagel, who heads Germany’s central bank, predicted that annual inflation in 2023 would still stand at 7% with the effect of lower interest rates taking longer to have the desired impact.

What does the Bundesbank expect?

Nagel told German broadcaster NTV that he expected inflation in Germany to drop next year, but he added that the European Central Bank would need to keep hiking up interest rates.

“It will still take some time before inflation is inflation will be back where it belongs, namely at 2%,” Nagel said.

“That means we will still go through some tough months,” he added.

Nagel said it would take between 18 months and two years for the rate hikes to be fully effective, Nagel said, adding, “That’s why I have to ask for patience at this point.”

The banking chief said the ECB has already acted strongly with four interest rate hikes this year.

“The rate hikes will continue,” said Nagel. “We’ve already gone some way, but there is still more to follow.”

Nagel added that he expected inflation rates to drop in December because of measures introduced by the German government to help businesses and consumers with rising energy prices. 

String of interest rate rises

The ECB raised its main interest rate by 0.5 percentage points to 2.5% last week, with rates first rising in July from a record low of 0% that had lasted years.

Soaring consumer prices because of higher energy costs in the wake of the Russian invasion of Ukraine led the ECB to change its policy on the cost of borrowing.

Although higher interest rates are seen as a crucial tool to keep inflation in check, they also place a burden on the economy by making loans to companies and households more expensive to repay.

The ECB’s latest forecast for the eurozone is an annual average inflation rate of 8.4% in 2022, falling to 6.3% next year and 3.4% in 2022.

While you’re here: Every Tuesday, DW editors round up what is happening in German politics and society. You can sign up here for the weekly email newsletter Berlin Briefing.

rc/sms (dpa, Reuters)