Inflation in the euro area is a full five percent. That is the highest value since the monetary union was founded. What robs citizens of purchasing power could turn out to be an advantage for Joachim Nagel.
Ceremony at Bellevue Palace: Federal President Steinmeier appoints Joachim Nagel as the new Bundesbank President on January 7th.
Observers are eagerly awaiting the first public appearance of Joachim Nagel as President of the Deutsche Bundesbank tracked. At the solemn Act to take office from his predecessor Jens Weidmann, Nagel in the presence of ECB President Christine Lagarde and Federal Finance Minister Christian Lindner hit the right note, although he was nervous in some places.
Inflation high in December
On the one hand, he confessed to The Bundesbank’s culture of stability and made clear reference to the primary objective of monetary policy: price stability. On the other hand, he emphasized the importance of climate change for certain aspects of monetary policy – a tribute to Madame Lagarde’s favorite topic. In the short term, price stability is currently more important and definitely threatened. In the euro area, inflation reached five percent in December, and in Germany it is even higher.
Like his predecessor, Nagel sees the risk that inflation will remain high longer than many expected. He urged the Governing Council to act when price stability so required, and he recalled the social cost of inflation because it hits people on lower incomes harder than others as they spend more of their income on consumption.
Dunning and exhortation
Jens Weidmann had hardly stayed more than admonishing in the past few years. Because the voice of reason from Germany was valued externally in the ECB Council, but was gladly ignored internally in the decision-making process. That was less due to Weidmann than to the balance of power in the council. However, the environment in which inflation has been very low for years also played an important role.
Due to the low inflation, the proponents of a very expansionary monetary policy always had a good argument not to abandon it. That has now changed and it seems to be dawning on more and more councilors that high inflation could become a serious problem. This should make it easier for Nagel to start at the ECB. Because it automatically gives his arguments more attention and more urgency.
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