German central bank head expects inflation above 4% this year

ANKARA

German Federal Bank President Joachim Nagel expects inflation above 4% this year, he told German newspaper Die Zeit on Wednesday.

"Inflation hits a lot of people hard and is something that concerns me as Bundesbank President," he said.

The central bank chief said global economic recovery from the coronavirus pandemic was "unexpectedly quick and strong," however, economic growth was accompanied by high energy demand, which was coupled with the geopolitical situation between Ukraine and Russia.

"An important question for monetary policy is whether and to what extent energy prices will fall again," said Nagel.

He stressed that another major reason behind high inflation is central banks providing markets with an overabundance of liquidity over the years as the inflation rate was too low for a long time.

Nagel added that the European Central Bank (ECB) is now facing a new and different test, compared to the low inflation environment, and the ECB will look into incoming macroeconomic data for its new growth and inflation projections to be made in March.

"If the inflation picture and, above all, the view to the future do not improve significantly by then, then we will have to realign monetary policy," he said. "First we will exit net bond purchases, then we will raise interest rates.”

The ECB last week kept interest rates unchanged, while inflation in the euro area is expected to come in at 5.1% in January, according to a flash estimate from Eurostat.

The annual inflation rate in Germany is expected to be 4.9% in January, according to German Federal Statistical Office Destatis.