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ECB's Vigilance Essential in Face of Uncertain Outlook, States Nagel

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The European Central Bank's Vigilance in the Face of Uncertain Outlook, According to Joachim Nagel

Joachim Nagel, a member of the European Central Bank's Governing Council, emphasized the need for vigilance in monitoring factors that could lead to higher-than-predicted inflation. Nagel specifically pointed to the labor market as a source of concern. He highlighted the importance of remaining cautious due to the time lag between implementing monetary policy measures and their full impact. The outlook remains uncertain, and there are risks that inflation could exceed expectations. Nagel's remarks come as the European Central Bank left interest rates unchanged last month, acknowledging the achievement of a reasonable degree of tightening and a decrease in inflation pressures. However, energy costs and wage increases continue to pose risks to the outlook. The ECB's current projection indicates a return to the 2% inflation goal in the second half of 2025. While further rate increases from the ECB are not anticipated by investors and analysts, Executive Board member Isabel Schnabel has not ruled out the possibility of tightening in response to new shocks. Nagel highlighted the combination of robust wage growth and a declining labor supply as factors that will maintain pressure on inflation. The Governing Council will continue to take a data-dependent approach, ensuring that the monetary-policy rate remains sufficiently high to facilitate a return to 2% inflation.

Implications of ECB's Vigilance for New Businesses

Joachim Nagel's emphasis on the European Central Bank's vigilance in monitoring potential inflation triggers holds significant implications for new businesses. The ECB's cautious approach, driven by an uncertain economic outlook, underscores the importance of businesses being equally vigilant in their financial planning and forecasting.

Impact of Inflation on Business Costs

Nagel's concern about the labor market and the potential for robust wage growth to drive inflation is particularly noteworthy. For new businesses, wage inflation can significantly increase operational costs. Additionally, the mention of energy costs as a risk to the economic outlook is a reminder for businesses to consider the volatility of these costs in their financial planning.
Adapting to Monetary Policy Changes
While the ECB has left interest rates unchanged, the possibility of future tightening in response to new shocks is a crucial consideration for new businesses. Such changes can impact the cost of borrowing and overall financial stability. In summary, the ECB's vigilant stance in the face of an uncertain outlook serves as a reminder for new businesses to remain alert to economic indicators, adapt to changes in monetary policy, and factor potential inflationary pressures into their financial strategies.
Story First Published at: https://financialpost.com/pmn/business-pmn/ecb-must-remain-vigilant-due-to-uncertain-outlook-nagel-says
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