Germany’s new central bank chief has told eurozone rate-setters to “be on the alert” over persistent inflation in an opening salvo at European Central Bank president Christine Lagarde.
The first public remarks of Joachim Nagel, the new president of the ultra-hawkish Bundesbank, came in the wake of German inflation surging to 5.3pc in December, the highest since June 1992.
Mr Nagel urged the ECB to get a grip on inflation amid rising discontent in Germany over almost a decade of negative interest rates and an emergency €1.85bn money-printing programme to tackle Covid.
He said: “The public have significantly less money in their pockets. Many people are understandably concerned about this loss of purchasing power – deeply concerned.”
Mr Nagel added: “I currently see a greater risk that inflation rates could remain elevated for longer than currently expected. In any case, monetary policymakers must be on the alert.”
Across the Eurozone, overall inflation has also reached a record high of 5pc in the wake of the pandemic, more than double its 2pc target.
The ECB loosened its inflation target to allow overshoots as well as undershoots of the target last year, giving it more flexibility to fight the pandemic.
But Mr Nagel warned: “One thing is quite clear through all the uncertainty: the ECB Governing Council must act and must adapt its monetary policy stance where doing so is needed to safeguard price stability.
“As central bankers the most important capital we have – something we central bankers all know – is trust, people count on us to keep the value of money stable.”
Mr Nagel rejoins the Bundesbank from the Bank for International Settlements, and succeeds Jens Weidmann, a long-time opponent of the ECB’s quantitative easing efforts. Mr Weidmann said the central bank’s new inflation target was “yet to be put to the test” at the virtual event.
Christian Lindner, Germany’s new finance minister, said: “It’s only based on stable prices that the citizens of the country can nurture their wellbeing and welfare, those who seek to pursue their dreams. All of this is only possible if and when you can rely on your reserves maintaining their value.
“People with moderate incomes are even more dependent on price stability, because even small inflation can account for the difference between the fridge at the end of the month being full or empty.”
