The suggestion of an advance tightening of monetary policy that Christine Lagarde dropped last Thursday, after the meeting of the ECB governing council, is not enough for the president of the Bundesbank, Joachim Nagel, who calls for a "quick reaction" in the face of high inflation and believes that a change in interest rates is possible this year. "If the picture does not change by March, I will advocate the normalization of monetary policy"advances the newly appointed president of Buba in an interview with the German weekly Die Zeit that will be published in its entirety tomorrow.
"In my opinion, the economic cost of acting late is significantly higher than if we act early," he adds, basing his claim on "what past experience has shown us."
"Otherwise," he warns of dire consequences on the markets: "If we wait too long and then have to act more massively, the market fluctuations can be stronger."
The team of experts from the Bundesbank expects an increase in prices of "more than 4%" on average for Germany in 2022. Nagel not only does not foresee a normalization of inflation in the medium term, around the objective set by the statutes of the ECB of around 2%, but expects a prolonged data that must be counteracted as soon as possible, although he agrees with Lagarde that they should first finish the purchases of government and corporate bonds. "The first step is to end net bond purchases through 2022. Then interest rates could go up this year," he advises of the timetable.
Inflation continues to be the main concern in Germany, not only for the Bundesbank but also for citizens, who point to it in the polls as the main threat above the pandemic or the conflict in Ukraine. According to data from the Federal Statistical Office, German prices fell only slightly to 4.9% in Januarywhen economists were actually expecting a stronger drop due to the expiration of various special effects.
In the euro zone, it even rose slightly to 5.1%, although the calculation method differs somewhat from that of the German Federal Statistical Office. Georg Thiel, President of the Destatis Statistical Office, considers that the punctual reduction “is an effect in particular of the temporary reduction of VAT in the second half of 2020, as well as the previous drop in oil derivatives last year. ». "Alongside the time-based effects of the past, there are effects derived from the crisis, such as supply problems and the notable increase in prices in the initial phases of the economic process, which are partially reflected in the rate of inflation."
Without taking into account the impact of energy, the inflation rate in 2021 would have stood at 2.3%; highlights the increase in the price of energy products in 2021, 10.4%, after having contracted in 2020 and 4.8%. Consumers had to pay especially more for light heating oil -41.8%- and fuels -22.6%- and the prices of natural gas -4.7%- and electricity -1 ,4%-. Food prices increased in 2021 and 3.2% compared to 2020 and in the second half of the year this rebound was exacerbated due to the base effect due to the temporary VAT reduction a year ago, while goods in general became more expensive in 4.3% as a whole in relation to 2020, in particular fungibles -5.4%-. The loss of consumption in the period is 2.4%, between vehicles -4.5%- and furniture and lamps -3.2%-. This is the context in which Nagel rushes Lagarde.
The ECB will present new inflation forecasts at its next monetary policy meeting in March and they are expected to be higher than in December. In response, it could announce a faster reduction in its bond purchases and thus keep open the option of raising interest rates this year. In the money market, interest rate hikes of around 0.25 percentage points are already being priced in before the end of 2022. The deposit rate, which is decisive for monetary policy, is currently -0.5%.