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The war in Ukraine is unlikely to result in slow economic expansion alongside surging consumer prices, European Central Bank Governing Council member Joachim Nagel told German newspaper Handelsblatt.
“I don't expect stagflation at the moment, even though the fallout of the war will boost inflation rates and weaken economic growth,” said Nagel, who also heads Germany's Bundesbank. There are currently “no signs” of a wage-price spiral, he said.
Nagel labeled last week's ECB decisions to accelerate the withdrawal of asset purchases while staying nimble on the timing of an interest-rate increase a “good and balanced” approach. “I consider it very important that we don't pre-commit in times of high uncertainty, but stay flexible, he said.
Given elevated euro-area inflation, “we need to keep our sights trained on the normalization of our monetary policy,” he said.
Asked about the risk of government-bond yields rising excessively should the economic backdrop worsen, Nagel said “this is an area primarily for fiscal policy.”
“It's not up to monetary policy to safeguard government financing,” he said. “So far, risk premia are no higher than they were before the pandemic.”
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