New Bundesbank president takes charge with warning on inflation risks

New Bundesbank President Joachim Nagel warned in his first speech on the job that inflation may remain elevated for longer than currently expected, urging his colleagues at the European Central Bank to be vigilant.In vowing to follow in his predecessor’s footsteps, Nagel is setting himself up to become one of the ECB’s most conservative officials.

Jens Weidmann was often a thorn in the side of his colleagues during his 11-year tenure with his strict views on policy.“For confidence, it’s particularly important that monetary policy focuses on the goal of price stability,” Nagel said Tuesday.

“Central banks should therefore maintain their independence and interpret their mandate narrowly.”Inflation in the euro area reached a record 5% in December and is running at an even faster pace in Germany, triggering calls from economists and politicians for tighter policy.

While Nagel acknowledged that temporary factors are partly to blame for current pressures, he also called the medium-term outlook “exceptionally uncertain.

”“It’s true that prices could rise less than estimated in projections,” he said. “However, I currently see a greater risk that inflation rates could remain elevated for longer than currently expected. In any case, monetary policy must be on guard.”Nagel said his arguments in the ECB’s Governing Council will follow the established Bundesbank line. The German institution warned early of emerging inflation risks, insisted that an emergency bond-buying program remained tightly linked to the pandemic and fought to maintain flexibility in the ECB’s stimulus response.

“Despite all uncertainty, one thing is crystal clear: If price stability warrants it, the Governing Council must act and adjust its monetary-policy course,” Nagel said.

The commitment to tackling inflation was backed by ECB President Christine Lagarde, who also spoke at Tuesday’s Bundesbank event marking Nagel’s arrival.“We understand that rising prices are a concern for many people, and we take that concern very seriously,” she said.

“But people can trust that our commitment to price stability is unwavering, which is critical for the firm anchoring of inflation expectations and for confidence in the currency.”