Latest: Bundesbank President Joachim Nagel hardened the December case on Tuesday, telling Bloomberg Television that “it is rather obvious that we have to increase in December” and that the ECB will do what is needed to return inflation to 2 percent. Nagel, who on November 3 called a December hike very likely necessary, said the drop in energy prices since the US midterm elections is good news but that market expectations do not drive the Governing Council’s decisions, and he said he sees no risk of fiscal dominance, adding that France must look at its own fiscal challenges. His wording is the strongest public commitment yet from a national governor, and it lands the same day Lane and Kazaks made the case from the chief economist’s office and Riga.
The European Central Bank’s December meeting acquired a public sponsor on Tuesday. Chief economist Philip Lane told Bloomberg Television that if the information set in December is exactly the same as today, it would be prudent to hike, warning that there will be more to come in terms of peak inflation. A December move would be the ECB’s third increase this year, after quarter point rises in June and September took the deposit rate to 2.50 percent.
Lane also drew the line markets most wanted tested. Asked about France, where government bond yields have surged to their highest since 2002 on fiscal and political stress, he said the ECB should not deploy its tools to ease France’s problems, keeping the Transmission Protection Instrument reserved for unwarranted contagion rather than a national fiscal fix. Governing Council member Martins Kazaks made the same distinction from Riga, describing the pressure on French bonds as a repricing of fiscal risk rather than a financial stability problem, and arguing there is no need to slow or end quantitative tightening.
Kazaks matched Lane on the rate path with a governor’s caution. Another hike may be needed in December, he said, but judgments on tightening have become more nuanced, the trade-offs ahead will be more delicate, and gradual action remains appropriate, because the bank must curb inflation without excessively harming the economy. From today’s perspective, he added, further tightening appears justified.
The data released the same morning lean their way. Euro area inflation on the harmonised measure rose to 4.0 percent in October from 3.8 percent in September, Statistics Netherlands reported in its own release, double the ECB’s target, with the Dutch national rate up to 3.7 percent from 3.4 percent on energy prices. The ECB, the Federal Reserve (December 8 to 9), the Bank of England (December 17) and the Bank of Japan (December 17 to 18) now all meet within ten days in December, with hikes live at every one of them.