ECB Must Be ‘Vigilant’ as Inflation May Surprise, Nagel Warns

FRANKFURT (Reuters) – Joachim Nagel, a policymaker at the European Central Bank (ECB), emphasized the need for continued vigilance in light of potential inflationary pressures in the eurozone, driven by rising wages and a declining labor supply.

Nagel, who is also the president of the Bundesbank, joined other conservative ECB officials in highlighting this critical viewpoint, reflecting terminology historically associated with impending interest rate hikes.

"It is imperative to remain vigilant," Nagel remarked at an event in London. "There is a lot of uncertainty surrounding the outlook, and we still face risks that the inflation outlook could turn out higher than expected."

The ECB has implemented a series of ten consecutive interest rate increases to combat inflation but paused these hikes last month. Currently, investors are speculating that the next move by the ECB will be a rate reduction, possibly occurring as early as spring.

In recent days, ECB board member Isabel Schnabel and Austrian governor Robert Holzmann have also underscored the importance of vigilance, echoing Nagel’s sentiments.

Historically, during Jean-Claude Trichet’s presidency, the ECB frequently utilized the phrase "strong vigilance" to indicate that a rate hike was imminent.