Bundesbank President: Major wave of inflation is over

Bundesbank President Joachim Nagel is optimistic about inflation in the euro area. “The big wave of inflation is over,” Nagel told the “Frankfurter Allgemeine Zeitung” (FAZ/Wednesday). “If there is no further unexpected major shock, such as Russia’s attack on the Ukraine war in February 2022, then inflation should continue to rise to 2 percent.”

But we should not celebrate too soon. “We have not yet reached our goal. We must remain vigilant and keep an eye on the risks on the way back to stable prices; that is our job as a central bank.”

However, the Bundesbank President did not want to commit himself to whether he would vote for a rate cut at the next interest rate meeting of the European Central Bank (ECB). “We are still not operating on autopilot,” stressed Nagel. “But I will say this: I see inflation on the right track.”

Financial markets expect a reduction in key interest rates

The ECB will decide on the key interest rates on September 12th. The financial markets are expecting a reduction. Inflation in the eurozone recently came close to the ECB’s medium-term target of two percent, at 2.2 percent in August. In June, the central bank cut key interest rates for the first time since the wave of inflation. In July, the ECB left interest rates unchanged and kept the door open for key interest rate cuts in September.

In an interview with the FAZ, Nagel also indicated that he feared operating losses for the Bundesbank for the current year as well. “We may be at a similar level this year as in 2023. Because we have largely used up our risk provisions, we will have to work with loss carryforwards for the next few years.”

“But what is important to me is that the Bundesbank’s profits will return in the future.” The Bundesbank’s balance sheet is solid and there are large valuation reserves, said Nagel. “That’s why no one needs to worry – the Bundesbank does not need any additional capital.”