High inflation warrants 'resolute' ECB action, says Bundesbank

THE head of Germany's Bundesbank on Friday (Jun 10) said the European Central Bank (ECB) should take "resolute action" to rein in soaring prices, as he unveiled sharply higher inflation forecasts for the EU's biggest economy.

"Euro area inflation rates won't fall by themselves," Joachim Nagel said in a statement.

"Monetary policy is called upon to reduce inflation through resolute action."

The Bundesbank's newest projections see Germany's annual inflation rate jump to 7.1 per cent in 2022, up from 3.6 per cent in a previous estimate in December.

"Inflation this year will be even stronger than it was at the beginning of the 1980s," Nagel said.

Looking further ahead, German inflation should reach 4.5 per cent in 2023 and 2.6 per cent in 2024 - compared with earlier estimates of 2.2 per cent for both years.

As in other countries around the world, German consumer prices have been pushed higher by Russia's war in Ukraine and supply chain bottlenecks in Asia. Energy costs especially have soared.

The ECB on Thursday announced plans for a series of interest rate hikes in the coming months, joining other central banks in the battle to tame inflation.

The ECB intends to raise its key rates by 25 basis points on July 21, its first hike in more than a decade, and left the door open to an even larger rate increase in September.

The Frankfurt institution also cut its forecasts for economic growth in the 19-nation eurozone, while once again raising the inflation outlook.

The Bundesbank meanwhile said it now expects the German economy to grow by just 1.9 per cent this year, compared with 4.2 per cent earlier. AFP