Bundesbank raises inflation expectations as Weidmann urges vigilance – News Couple

Bundesbank raises inflation expectations as Weidmann urges vigilance

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The Bundesbank expects German inflation to remain above 2% through 2024 – a forward-looking view that will amplify calls within Europe’s largest economy for the rapid removal of monetary stimulus.

Outgoing President Jens Weidmann warned that price pressures could be stronger and warned that the European Central Bank should not ignore these risks.

The central bank expects consumer prices to rise by an average of 3.6% in 2022 before slowing to 2.2% in the next two years, according to forecasts published Friday. Expectations are higher than in the 19-nation eurozone.

The Bundesbank argues that inflation in Germany reflects a strong rise in wages, a “favorable economic situation” and costs associated with the transition to a climate-neutral economy – as well as a combination of temporary factors. She also said that higher prices due to delivery and transportation bottlenecks have passed on to consumers.

“Inflation risks are skewed to the upside, both in Germany and the eurozone as a whole,” Weidmann said. Monetary policy makers should not ignore these risks. We need to be vigilant.”

Consumers, businesses and politicians in Germany are increasingly concerned after inflation hit 6% last month. With no replacement named for Weidmann, who left at the end of the year, the team surrounding newly appointed Finance Minister Christian Lindner has tried to allay concerns, arguing that price stability is high on their agenda.

Citing stronger expectations for economic growth and inflation, European Central Bank officials on Thursday announced a gradual reduction in bond purchases next year. The emergency epidemic control program will be discontinued as planned in March, with regular asset purchases temporarily enhanced to facilitate the transition.

Germany’s central bank said renewed coronavirus infections and subsequent restrictions to curb the disease will trigger an economic setback in the current quarter and first three months of 2022. The economy is expected to regain “significant momentum” in the spring amid “significantly” higher private spending. Supply bottlenecks were seen dissolving by the end of 2022.

Ifo will publish its business climate index at 10 am Frankfurt time.

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