Key facts
- Bundesbank President Joachim Nagel believes the ECB is well-positioned to manage energy price shocks.
- Nagel advised the ECB to await data before deciding on a September rate hike.
- Euro zone companies are struggling to pass on increased costs to price-sensitive consumers, leading to squeezed margins.
- Euro zone consumers lowered their inflation expectations in June.
- ECB chief economist Philip Lane stated inflation will return to 2% in about a year.
- Lane characterized the current inflation overshoot as a medium-sized shock requiring a measured response.
Bundesbank President Joachim Nagel stated that the European Central Bank (ECB) is well-positioned to manage energy price shocks and should analyze incoming economic data before deciding on a September rate hike. Separately, ECB chief economist Philip Lane said the bank expects inflation to return to its 2% target in about a year, characterizing the current inflation overshoot as a medium-sized shock that requires a measured response rather than aggressive moves. A recent ECB survey revealed that euro zone companies are struggling to pass on increased costs, such as higher fuel and petrochemical prices, to consumers who are highly price-sensitive, leading to squeezed margins for about 40% of firms. Competition from Chinese manufacturers offering low-priced products further compounds these tough market conditions. The survey also showed that euro zone consumers lowered their inflation expectations in June, with the median expectation for the next 12 months falling to 3.0% from 3.5% in May. While the ECB has not yet seen significant second-round price or wage impacts from surging energy costs, it warns that prolonged high energy prices increase the likelihood of such effects becoming evident.