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German inflation could stay above 2% through mid-2022 -Bundesbank By Reuters


© Reuters. FILE PHOTO: The Edeka grocery shop sells pasta to customers, while the spreading of COVID-19 (coronavirus disease) in Duesseldorf continues, Germany, on April 29, 2020. REUTERS/Wolfgang Rattay

FRANKFURT (Reuters) – German inflation is likely to accelerate from already high levels and will stay above 2% through mid-2022, exceeding the European Central Bank’s target for the 19-nation euro zone, the Bundesbank said in a monthly report on Monday.

This year’s inflation has been fueled by a multitude of unique factors, such as tax hikes, supply bottlenecks or commodity price increases. The debate over the need to have extremely loose monetary policy is raging among inflation-stricken Germans that already distrust the ECB.

According to the Bundesbank, inflation rates between 4% & 5% can be possible temporarily between September and December. While inflation is expected to drop noticeably by 2022’s start, it will be higher than 2% at the end of the year.

Although most economists believe that recent high inflation readings are temporary, it is still possible for these price pressures to cause permanent inflation via so-called “second round” effects.

Christine Lagarde (ECB President) asserts that high inflation is caused by temporary factors. She also believes that these variables will persist beyond the pandemic.

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The ECB still expects price growth not to be strong and will continue to lag below the 2% target for many years.

The gap between inflation expectations and the ECB’s 2% target seems to be quite narrow. Conservative policymakers argue that only a handful of second-round effects are needed to push inflation up.

Although conservatives still make up a small percentage of the ECB’s Governing Board, they are likely to keep their ultra-easy policies going for many years.

However, the ECB expects to close a crisis-era stimulation scheme next March. The key issue over the following months will be whether this support should be replaced with new measures.

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