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The head of the German central bank has called for “pandemic-related bond purchases to be reduced step by step” and warned that inflationary pressures are rising in the eurozone.
Jens Weidmann said there were “upside risks” to the inflation outlook and that energy prices could rise more than economists expect from government policies to combat climate change.
The ECB’s stimulus program to alleviate the economic impact of the pandemic should end “as soon as the emergency situation is over,” Weidmann said in a speech Monday.
His statements set off a clash with other members of the central bank’s governing board over the future path of his policy. Politicians will meet next month, but are expected to get it by announcing a decision by the September meeting.
“Inflation is not dead,” said Weidmann, one of the most conservative hawks on the ECB’s governing council. He compared inflation to the Galapagos giant tortoise, which was erroneously classified as extinct for 100 years.
Eurozone inflation pink at 2% in May, the first time the rate has exceeded the ECB’s target in more than two years, although economists expect new data on Wednesday to show it will decline slightly in June. While the central bank has predicted that price growth will fade next year, Weidmann has stressed the need to “stay alert”.
“In my estimation, risks around the price outlook have changed,” he said, warning that “upside risks to price developments predominate in the euro area.”
Inflation will continue to rise next year if oil prices do not fall as widely expected, he said, adding: “In addition, politicians could take additional measures to protect the climate and therefore raise prices. of energy “.
A German carbon tax helped raise inflation in Europe’s largest economy to 2.4% in May, the highest in more than two years. Weidmann said inflation could reach 4% in Germany by the end of this year, adding, “This reduces the purchasing power of private households.”
“Thanks to the progress of vaccination, the euro area economy is already emerging from the crisis,” said the head of the Bundesbank, adding that this “has implications” for the emergency purchase program (PPP) of the ECB, its flagship crisis – fighting policy.
The ECB increased the pace of the PEPP in March and has just over € 700 billion left out of the € 1.85 billion to be spent on the program, which should last at least until March of 2022.
Bond purchases will stop when the ECB judges the coronavirus crisis. Weidmann said the PEPP should end when all “notable” containment measures had been lifted and the economic recovery “solid”, adding that the eurozone was expected to reach pre-production levels. -pandemic in the first quarter of 2022.
“By not having to end PEPP all of a sudden, however, net purchases could be reduced step by step in advance,” he said.
His comments contrasted with those of Fabio Panetta, a member of the ECB’s executive board, who said a speech Monday: “Looks like we’re not on track to turn the economy around.” He warned that “the slowdown in the economy is likely to continue for a long time to come.”
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