ECB must be 'vigilant' as inflation may surprise, Nagel says

FILE PHOTO: European Central Bank (ECB) headquarters in Frankfurt

FRANKFURT (Reuters) - The European Central Bank must remain "vigilant" because inflation in the euro zone may still come in higher than expected, fuelled by wage growth and shrinking labour supply, ECB policymaker Joachim Nagel said on Tuesday.

The Bundesbank president was part of a chorus of conservative ECB policymakers stressing the need for vigilance, using a word that echoes past central bank code for interest rate hikes.

"It is imperative to remain vigilant," Nagel told an event in London. "There is a lot of uncertainty surrounding the outlook, and we still face risks that the inflation outlook could turn out higher than expected."

The ECB raised interest rates 10 straight times to bring down inflation before pausing last month. Investors are now betting the next move will be a cut, potentially as soon as the spring.

Seeking to counter those expectations, ECB board member Isabel Schnabel and Austrian governor Robert Holzmann also mentioned vigilance in recent days.

During Jean-Claude Trichet's presidency, the ECB regularly used the phrase "strong vigilance" to signal a hike was only a month away.

(Reporting by Francesco Canepa; editing by Jonathan Oatis)