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ECB’s Nagel: No clear ​signs that inflation has fed through to price and wage setting

6:13 AM ETDeveloping

Business Desk

In Short: European Central Bank policymaker Joachim Nagel warns of ongoing inflation pressures despite no clear wage growth impact.

European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel warned on Monday that the impact of the energy shock-driven inflation has yet to feed into wage growth, indicating persistent risks to price stability.

Nagel, speaking in Sorrento, Italy, emphasized that upward risks still dominate the inflation outlook, suggesting a reluctance to ease monetary policy quickly. This cautious stance tends to underpin the Euro as markets reassess the path of future rate cuts.

Nagel's comments also highlighted the destruction of refining capacity, which is driving up prices for refined petroleum products significantly. He noted that gas prices are especially vulnerable due to low storage levels, while drought, wildfires, and fertiliser shortages pose additional risks to food prices.

The ECB official's call for flexibility rather than inaction underscores a bias toward keeping options open for further tightening if needed, rather than committing to a dovish stance. This approach aligns with longer-term market-based and expert expectations that remain consistent with the Eurosystem’s 2% inflation target.

Despite these concerns, Nagel's speech did not immediately impact the Euro, with no significant movement observed in the currency. However, the speechtracker score of 7.2/10, versus a historic average of 6.6/10, suggests a modest hawkish shift in the ECB's stance.

Nagel's remarks reflect a nuanced approach to managing inflation risks, balancing the need for flexibility with the imperative to maintain price stability in the face of ongoing economic uncertainties.

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Sources

• FXStreetlink