The European Central Bank must not remain inactive either – and will soon have to follow the US Federal Reserve on the way to normalizing monetary policy.

Bundesbank President Joachim Nagel explained this on Friday at the FAZ Congress 2022 in Frankfurt in an interview with FAZ publisher Gerald Braunberger: "We have to do something."

Christian Siedenbiedel

Editor in Business.

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Earlier on Friday morning, the head of the French central bank, François Villeroy de Galhau, had attracted attention.

He had pleaded for an end to the central bank's securities purchases in June and for the ECB's interest rate on deposits to be raised into positive territory by the end of the year.

This had instantly boosted the exchange rate of the euro, from $1.0499 to $1.0541.

Double-digit price increases in individual euro countries

Nagel emphasized that inflation in the euro area, but also in Germany, had reached an exceptionally high level.

In April it was 7.4 percent in Germany and 7.5 percent in the euro area as a whole.

In some euro countries such as the Baltic States, the Netherlands and recently also Slovakia, the inflation rate is already in double digits.

The President of the Bundesbank emphasized that high inflation hits people with a small or medium-sized budget particularly hard.

"But that also affects us all," said Nagel.

"I'm constantly asked about it in my circle of acquaintances."

Nagel expressed caution with regard to the timing of the first interest rate hike in the euro area.

He doesn't think much of speculating about it publicly now.

Most recently, even members of the ECB's board of directors, such as Isabel Schnabel and Vice President Luis de Guindos, said it was at least possible that the ECB would make the first rate hike in July.

Nagel said he was pleased that other members of the Governing Council were now taking his position that something had to be done about high inflation.

ECB chief economist Philip Lane and ECB board member Fabio Panetta had nonetheless pointed to the uncertainty about further developments as a result of the war in Ukraine.

"The war is difficult to predict," Lane said on Thursday.

Nagel warned that the central bank should not wait too long: "Otherwise the economic price will be too high."

What's next for inflation?

The President of the Bundesbank expressed understanding for the savers and their desire to soon receive positive interest rates again for their savings. He indicated that at least the period of negative interest rates on the part of the central bank would soon be over - but the negative real interest rates, which are responsible for the loss of purchasing power of savings after deducting inflation are likely to remain so for a while.

The President of the Bundesbank said that even after the war in Ukraine is over, things will not be as they were.

For example, there could be some deglobalization, and companies may try to make supply chains less vulnerable.

This is associated with costs that could have an impact on inflation.

The transformation of the economy towards more sustainability could also have consequences for inflation.

Studies by the Bundesbank suggest that this will contribute between 0.3 and 1.1 percentage points to inflation by 2030.

"All the more we have to make sure that the inflation rate stays where we want it to be," said Nagel.

"We all need stable money."