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In the price spiral: customer and seller at a vegetable market in Berlin
Photo: David Gannon / AFP
According to Bundesbank President Joachim Nagel, the German economy will only slide into a slight recession.
He has been President of the Bundesbank for a year and would not have thought what could happen in a year and how difficult the situation would be, said Nagel in an interview with the "Journal for the Entire Banking System".
"Nevertheless, I'm optimistic that we can avoid a severe economic downturn in Germany and get away with a mild downturn," he added.
He is also confident that the high inflation rate will be brought under control in the medium term.
Nagel currently sees no signs of a wage-price spiral in view of the wage agreements.
"The previous deals have mostly stayed below the inflation rate," said Nagel.
The instrument of tax-free one-off payments was also used.
"Therefore, we currently do not see any wage-price spiral in the sense of an additional increase in the rate of inflation through the current wage agreements - if at all, it is more of a price-wage spiral." Nevertheless, the risk of stronger second-round effects is high.
"Because the currently higher wage settlements could prolong the current phase of high inflation rates," he warned.
Inflation has proved more stubborn than most experts expected, Nagel said.
"But I have no doubt that we will come back to stable prices," he noted.
The European Central Bank (ECB) recently took its foot off the gas a bit in its monetary policy tightening course.
After two unusually large hikes of 0.75 percentage points each, it raised key interest rates by 0.50 percentage points in December.
ECB President Christine Lagarde also announced further hikes.
“We in the Governing Council of the ECB expect the inflation rate in the euro area to fall this year and in the next two years,” said Nagel.
However, this is not yet strong enough to reach the target of two percent, he added.
That means that "our job is not done yet."
The inflation rate in the euro zone was 10.1 percent in November.
That's five times the ECB's target.
kig/Reuters
