The European Central Bank will need help from governments and companies in stamping out the worst bout of inflation in the euro era, Governing Council member Joachim Nagel said.
(Bloomberg) — The European Central Bank will need help from governments and companies in stamping out the worst bout of inflation in the euro era, Governing Council member Joachim Nagel said.
While monetary policy needs to counter the spike in prices with higher interest rates, officials must “recognize the limits” of their influence and “ask for patience” as their measures take time to reach the economy, Nagel said in a speech.
“Other actors must also play their part in bringing the current phase of high inflation to a swift end,” he said Monday in Frankfurt.
That means governments should ensure “solid” public finances and avoid fanning inflation pressure through fiscal policies, according to Nagel. Competition authorities, meanwhile, should limit companies’ market power so prices don’t rise excessively.
ECB policymakers have become more vocal in warning against fiscal measures that aren’t sufficiently targeted to those in need after governments doled out wide-scale support to cushion the blow of higher energy costs. The concern is that such aid will make it more difficult to return inflation to the 2% goal by bolstering consumer demand.
Officials are also looking closely at corporate profits and wages as factors that are threatening to keep consumer-price gains elevated. ECB President Christine Lagarde has warned of a “tit-for-tat” dynamic between firms and workers that could propel prices higher.
Nagel said “companies that raise their price demands in a measured and justified manner” would be able to stabilize inflation, as well as “collective bargaining parties that show the sense of proportion for which they have rightly been praised in the past.”
“If we central banks consistently continue on the course we have taken, and if the political and economic environment also lives up to its responsibilities, then we will soon put the phase of high inflation behind us,” Nagel said.
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