lead us into complacency, though. inflation rates will not return to the central bank ’ s inflation target of their own accord. monetary policy needs to respond decisively in order to preserve the credibility of the inflation target. if this doesn ’ t ( tonne ) happen, firms, households and wage bargainers may well lose faith in the medium - term inflation target. one warning sign here is the fact that longer - term inflation expectations are now showing a stronger response to surprises in the inflation rate. there are other signs, too, that the risk of inflation expectations becoming unanchored has increased. against this backdrop, it is clear that european monetary policymakers need to take action – and they are taking action : a decision was made in june for the eurosystem to discontinue net asset purchases under the long - running asset purchase programme ( app ( asset purchase programme ) ). and last month saw us decide to raise the key ecb ( european central bank ) interest rates in the euro area for the first time in 11 years. an interest rate move of 25 basis points had been announced. but at its july monetary policy meeting, the ecb ( european central bank ) governing council judged that it was appropriate to increase the key ecb ( european central bank ) interest rates by 50 basis points. the era of negative interest rates is therefore over. what is more, the governing council assumes that further normalisation of interest rates will be appropriate. how far we raise interest rates, and by what increments, depends on how the assessment of the inflation outlook evolves. i supported the outcome of the meeting. as i see it, a larger interest rate increment reduces the risk of inflation expectations becoming unanchored. moreover, it lowers the risk of us having to increase interest rates too drastically at a later stage. we also should not delay further interest rate moves out of fear of a possible recession. empirical findings support this approach. based on these findings, data from a number of countries show that “ frontloading ”, that is, bringing forward interest rate moves, lowers the risk of the economy suffering a hard landing. and, overall, it can be said that the longer inflation remains high, the greater the risk of inflation dynamics, as well as inflation expectations, becoming entrenched at a high level in the medium term. given persistently high inflation rates, the effectiveness of monetary policy measures could decline. for instance, this is then the case if,

monetary policy in times of geopolitical crises and high inflation speech at european school of management and technology ( esmt ) 30. 08. 2022 | berlin | joachim nagel 1 introduction 2 why has inflation gone up? 3 are we heading for stagflation? 4 how should monetary policy respond? 5 concluding remarks 1 introduction ladies and gentlemen, the topic of money is one we hear cropping up in popular music again and again, often accompanied by a critical undertone. i ’ ll give you three examples. liza minnelli sang “ money makes the world go around ”. pink floyd incorporated the sound of a cash register into their song “ money ”. and then of course there ’ s abba, with the lyrics “ money, money, money, must be funny, in the rich man ’ s world ”. what links the three tracks is the period they emerged from : all three were composed and hit it big in the 1970s. and it ’ s probably no wonder. after all, that was a time when the purchasing power of money took a major tumble. and people were feeling what it meant not to have a stable currency. the bands pink floyd and abba were at the peak of their careers in the 1970s. and both bands have recently reappeared on the scene : just over four months ago, pink floyd released a new single to offer support to ukraine as it defends itself against russia ’ s war of aggression. after an almost 40 - year hiatus, abba brought out a new album last november. in the first week after its release, it sold more copies in germany than the rest of the top 100 combined. a hologram tour went on the road three months ago, with abba appearing as digital avatars on stage. is the persistent inflation of the 1970s also making a comeback? inflation in germany, as measured by the harmonised index of consumer prices ( hicp ), is above the 8 % mark for what is now a fourth consecutive month. the last time inflation rates hit similar levels in germany was just under half a century ago – during the first oil crisis. and this is prompting many observers to draw parallels with the inflation of the 1970s. in my speech today, i would first like to shed light on the background to the current wave of price increases. i will then turn to the question of whether there really are parallels to be drawn with the great inflation of the 1970s. i will finish by considering what the eurosystem can and must