Interest rate increases are becoming more likely if inflation expectations remain elevated, Germany’s central bank chief said in remarks published Wednesday.
Joachim Nagel, president of the Deutsche Bundesbank and a member of the European Central Bank’s Governing Council, told the newspaper Handelsblatt that the ECB would be more inclined to raise rates if expectations “do not change fundamentally.”
Nagel warned that sharp price increases for energy risk spilling over into other goods categories. “Things are already painful right now and more may lie in store on the inflation front,” he said.
He said inflation in Germany will likely average 2.7 percent in 2026, with some months potentially exceeding 3 percent.
ECB policymakers discussed the option of raising rates at their April meeting but ultimately agreed unanimously to leave them unchanged. Nagel said the eurozone is “no longer in the Eurosystem staff projection’s baseline scenario,” echoing comments by ECB President Christine Lagarde.
Nagel said the ECB remains committed to its inflation target despite weak economic growth. “No one enjoys raising interest rates when growth is under severe strain. But our mandate is to keep prices stable,” he said.