European officials have for several years been debating the need to be more autonomous and less reliant on other parts of the world, but talks intensified in the wake of the Covid-19 pandemic and then again after Russia’s invasion of Ukraine.
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Joachim Nagel, president of Germany’s central bank, the Bundesbank, and one of the ECB’s more hawkish members, told CNBC’s Annette Weisbach on Wednesday that consumer price rises are set to remain stubbornly high.
“It looks like, for at least the next couple of months, inflation will stay on very high levels, expect maybe for the second half that inflation might come down to a certain extent,” he said Wednesday.
“But still, what we expect for this year for Germany is an average inflation rate of around 6 to 7%.”
Markets have been pondering the prospect of higher interest rates for longer in the euro zone, after data released this week showed higher-than-expected inflation numbers from France and Spain.
European government bond yields rose Tuesday and then again Wednesday on the back of the latest data. The yield on the 10-year German bund — seen as the main benchmark in the region — climbed to its highest level since 2011 on Wednesday.
Goldman Sachs said Wednesday that it was increasing its expectations for peak interest rate hikes in the euro area. The investment bank now projects another 50 basis point rise in May, rather than an increase of just 25 basis points at the time. One basis point equals 0.01%.
Speaking to CNBC, Nagel also said that “the journey is not over” and that the European Central Bank will “have to do more” to reduce the balance sheet.
The ECB is this month starting to sell bonds at a pace of 15 billion euros ($16 billion) a month until June. Reducing the balance sheet is also a measure to bring down inflation in the bloc.
Eurostat, the region’s statistics office, is scheduled to release new inflation figures Thursday.
