However, the inflation outlook deteriorated further and rising prices in Germany, the euro zone’s largest economy, could even exceed 10% in the coming monthsas quoted on Saturday by the Rheinischen Post.
“Increases the probability that inflation will be higher than previously expected and will average six points and something next year”Nagel said, indicating a big upside risk from the Bundesbank’s previous projection of 4.5% by 2023.
“The ECB expects a rapid decline in price growth next year, but its projections have been notoriously inaccurate in recent quarters, leading policymakers to question the bank’s models, which are ill-equipped to have taking into account the drastic changes in the economy,” operators said.
Nagel also acknowledged that the German economy, one of the most exposed to interruptions in Russian gas supply, could suffer a recession during the winter if the energy crisis continues to worsen.
Still, “the ECB should not hesitate to raise rates,” Nagel said, adding that he fully supported the July move. “With the high rates of inflation, there must be new increases in interest rates”he maintained, although he refused to discuss the magnitude of the September measure.
Markets are currently forecasting a 60 basis point hike in September and a set of 130 basis points for the rest of the year.
Source: Ambito
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