Here’s Why Inflation Will Remain Stubbornly High

The president of the Bundesbank and one of the more hawkish members of the ECB, Joachim Nagel, told Trade Algo Wednesday that the rise in consumer prices will remain stubbornly high for the foreseeable future.

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“For the next couple of months, it looks like inflation will remain at very high levels, but it is possible that inflation might decrease to some degree by the second half of the year,” he said on Wednesday.

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“Yet, even so, we still expect Germany to suffer from an inflation rate of around 6 to 7% for the rest of this year.”

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After data released this week showed higher-than-expected inflation numbers for France and Spain, the markets have been contemplating the prospect of higher interest rates for a much longer period in the eurozone.

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Due to the latest data that came out on Tuesday and then again on Wednesday, European bond yields rose on both days. Wednesday saw a record rise in the yields on German bunds, which are considered the main benchmarks in the region, reaching their highest level since 2011.

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There has been an increase in Goldman Sachs' expectations for interest rate hikes in the euro area, which was announced on Wednesday afternoon. The investment bank now predicts that there will be another 50 basis point rise in May, rather than the 25 basis points that were predicted at the time.

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According to Nagel, in an interview with Trade Algo, the central bank needs to do more in order to reduce its balance sheet, and the journey is not over.

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It has been announced that the European Central Bank will begin selling bonds at a rate of 15 billion euros a month from now until June. The reduction of the balance sheet is also one of the measures that can be taken to reduce inflation in the European Union.

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New inflation figures will be released on Thursday by Eurostat, the regional statistics office.