joachim nagel : the current economic situation welcome words by dr joachim nagel, president of the deutsche bundesbank, at a club evening of the international club of frankfurt economic journalists, frankfurt am main, 21 november 2022. * * * 1 words of welcome ms schreiber, many thanks for your kind invitation and warm introduction. i am very pleased to join the ranks of the bundesbank presidents who, starting when the euro was introduced back in 1998, have been invited by the international club of frankfurt economic journalists to meet with its members for an exchange of views and ideas. like my three predecessors, ernst welteke, axel weber and jens weidmann, it is very important to me to communicate and interact with media representatives. in times of high inflation, it is all the more necessary to explain and contextualise what pushes inflation higher and how effective monetary policy measures are. as journalists, you have a particularly important role to play here as the link between an institution such as the bundesbank and the general public. that's because, in turn, communication with the public is key to the effectiveness of monetary policy and of economic policy in general. a current example is the proposal put forward by the gas price commission. unlike a price cap, the gas price brake does not distort price signals at all. however, for the full effect of the gas - saving incentives contained in this brake to be felt, the general public needs to correctly understand them. communicating in an accessible way with the outside world helps to create trust – and trust is an indispensable foundation for monetary policy. christine lagarde summed it up well recently. : " if people don't understand what i'm saying, how can they trust me? after all, today people don't trust someone only because the person expresses herself or himself in a complicated way " 1 your reporting makes a significant contribution to helping us achieve our monetary policy objectives. the way in which you explain and give context to this complicated subject matter helps your audience understand it. but we central bankers and economists also need to take care to express ourselves in a way that can be clearly understood. accessible communication fosters public trust – and that is what the success of our monetary policy measures hinges on. it is precisely this confidence in our ability and our determination to ensure price stability that will be vital in the coming months – because challenging times lie ahead. and the ecb governing council will have to continue

had a more severe recession. eventually, the realisation that inflation did not generate sustainably higher output and employment produced a determination to restore stability to the uk economy. since our departure from the erm, in september 1992, successive governments have put in place institutional changes that would deliver stability. first the inflation target and then independence of the bank of england, with the new monetary policy committee ( mpc ), have put us firmly on course to achieve monetary stability. and there is also now a clear fiscal policy framework to ensure that the public finances are in a sustainable state in the long run. the success of that approach can be seen in the remarkable degree of stability that the uk economy has achieved since the inflation target was adopted in october 1992. over that period inflation has averaged 2. 7 %. and it has been more stable than in any period since monthly rpi figures were first collected in 1947. output has grown at an average annual rate of 2. 9 %, well above the post - war average. growth too has been more stable, and there have now been 31 consecutive quarters of expansion, the longest unbroken sequence since official records began. nevertheless, while monetary stability may be a necessary condition for exchange rate stability, it is clearly not sufficient. the evidence is the sharp rise in sterling against the euro over the past three years. sterling is now some 40 % higher against the euro than in late 1996. this is not the direct result of uk monetary policy - changes in interest rate differentials account for only a small part of the appreciation against the euro, and sterling has hardly changed against the dollar over the past five years. sterling ’ s strength is largely the result of continuing weakness in the euro. that does, however, create problems - for some of you, and for the mpc as well. to maintain stability the mpc has an inflation target of 2½ %. to meet the inflation target the mpc sets interest rates to keep nominal demand in line with supply at the target inflation rate. in that way it tries to maintain an overall balance in the economy. but sharp changes in either the exchange rate or the world economy - both of which we have seen over the past three years - mean that overall balance requires swings between external and domestic demand. the mpc can - and did - respond to external developments by changing interest rates so as to influence domestic demand to restore the overall balance. but in so doing the economic see - saw lurched with external demand falling and domestic demand rising