ECB Governing Council member Nagel: Inflation outlook is deteriorating increasingly; may have to raise rates in December.

Title context: ECB Governing Council member Nagel: Inflation outlook is deteriorating increasingly; may have to raise rates in December. Text: European Central Bank Governing Council member and Bundesbank President Joachim Nagel said that because the inflation outlook is deteriorating, the ECB may have to raise borrowing costs next month. Speaking in Berlin, Nagel said that even the ECB's September baseline forecast for consumer prices already assumed further rate increases, and that since then the inflation situation had worsened further, with repeated surges in energy costs also increasing the risk of knock-on effects on prices of other goods and services. ECB officials may be able to judge that risk more clearly when they meet again in December, because they will then have a fresh set of economic projections extending through 2029. "We will make our decision on the basis of these projections. But as things stand, unless the inflation outlook improves significantly, a rate hike seems unavoidable," Nagel said. Euro-area inflation mixed as German inflation slows A report due Wednesday from Eurostat is expected to show that euro-area inflation rose to 4% last month, double the ECB's 2% target. However, core inflation, which strips out volatile items such as energy, is expected to remain unchanged at 2.5%. The ECB kept rates unchanged last week. It has raised rates twice since the Middle East war broke out. However, several officials have said further action may be necessary. Nagel expressed that view in an interview last Friday as well. He said at the time that the ECB would act decisively as necessary to bring inflation back to target. Nagel said one reason the ECB paused last week was that so far there had been little sign of second-round effects from inflation. But he said higher energy prices "could increasingly feed into wage demands," "which in turn would push prices up further." Later on Tuesday, Nagel's Dutch counterpart, Olaf Sleijpen, said that although the shock from the Iran situation had proved more persistent than previously thought, so far the impact had shown only "the first signs of indirect effects." Still, he said that while longer-term inflation expectations were "behaving fairly well," shorter-term inflation expectations were rising. "With energy prices remaining high, the upside risks of further indirect and second-round effects are very clear. This is exactly what central banks do not want to see," Sleijpen said. Bulgarian National Bank Governor and ECB Governing Council member Dimitar Radev said on Tuesday that last week's pause did not mean the rate-hiking cycle was over. His Slovak counterpart, Peter Kazimir, likewise said last Thursday that last week's rate decision was "not the end." Economists expect the ECB to deliver a final rate hike next month. However, investors believe tightening may continue into 2027.