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.
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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