The president of the German central bank, Joachim Nagel, has urged the European Central Bank (ECB) not to change its strategy despite falling oil prices and some easing in inflation.
"Inflation is still too high," the Frankfurter Allgemeine Zeitung cited Nagel as saying on Wednesday on the sidelines of an ECB forum in Sintra, Portugal.
In June, the ECB raised key interest rates for the first time in nearly three years to combat the sharp rise in eurozone inflation sparked by skyrocketing oil prices after the outbreak of the war in Iran.
With signs of tensions easing in the Iran conflict, oil prices have fallen sharply. Brent crude oil recently dipped to about $73 per barrel - roughly the same as it cost before the fighting in the Middle East broke out at the end of February, driving oil prices as high as $120.
Nagel said he shares the surprise felt by many economists at the scale and speed of the price drop, adding that this had not been anticipated even in the ECB's most optimistic scenario. However, he warned: "We should not completely overturn our view of inflation because of this."
In Germany, the end of a fuel tax rebate is likely to drive up inflation again, the central banker said, adding that he still believes it was the right decision to allow the tax cut to expire at the end of June.
Following the oil price shock, inflation climbed to 3.2% in May, well above the ECB's target of 2%. As oil prices fall, price pressures are easing, with inflation falling year-on-year in June to 2.8% across the eurozone.
Some economists believe the ECB could leave key interest rates unchanged at its next rate-setting meeting in July. However, ECB executive board member Isabel Schnabel has suggested that the bank could continue raising key interest rates in a bid to bring down inflation.
Nagel advised the ECB to stick to its monetary policy approach of "making data-dependent decisions on a meeting-by-meeting basis."
