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Finance Minister OKs three percent inflation

The Local · 10 May 2012, 16:57

Published: 10 May 2012 16:57 GMT+02:00

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"In Germany, two to three percent is a range that it is still acceptable," Schäuble told reporters when asked about a potential easing of Germany's strict anti-inflation stance in light of the debt crisis.

However, Schäuble warned that an extended period of high prices would be going too far, saying that the Bundesbank central bank would draw a line at any retreat from price stability.

The European Central Bank (ECB), which brings together the central bank governors from all the 17 nations that share the euro, aims to keep inflation close to, but below, two percent.

Schäuble said that German inflation was currently above two percent, acknowledging that the "target was not quite met."

His comments came after a Bundesbank economist suggested one potential way out of the eurozone crisis was to boost domestic demand in Europe's top economy and tolerate the slightly higher German inflation this could produce.

"Germany would in this scenario have in the future an above-average inflation rate compared to the eurozone," the central bank economist wrote.

"But monetary policy would have to ensure that the average eurozone inflation rate corresponded to the (two-percent) target and that inflation expectations remained solidly anchored."

Germany, Europe's top economy, has long been seen as the most hawkish of eurozone members when it comes to inflation and was the chief architect of the ECB's price stability policies.

The country's wariness of runaway price increases is rooted in the trauma of the hyper-inflation it experienced during the 1920s, a period of major political instability that helped pave the way for the rise of the Nazis.

The eurozone debt crisis has put pressure on Berlin to do more to boost domestic demand as a way of helping its neighbours bounce back from the slump.

Schäuble said in comments published earlier this week that Germans deserved higher pay following years of wage restraint and labour market reforms.

Story continues below…

"By raising pay, Germany would help reduce economic imbalances in Europe," the minister added, referring to increased demand which would suck in exports from weaker eurozone states.

Germany's inflation in April stood at 2.2 percent, using the ECB's preferred yardstick - the Harmonised Index of Consumer Prices.


The Local (news@thelocal.de)

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Your comments about this article

18:16 May 10, 2012 by William Thirteen
given the issues in the periphery it only makes sense to keep monetary policy accommodative. core nations will have to resign themselves to this new normal and perhaps the ECB should rethink its mandate altogether.
17:15 May 12, 2012 by Englishted
Don't you just love the hypocrisy on display here?

The rules are not the rules when we break them ,the rules are simply there to be imposed on those countries that don't agree with us and how we should run their economies.

They also seem to have forgotten that high unemployment as well as political instability helped pave the way for the rise of the Nazis, yet are prepared to force countries to increase unemployment to a dangerous level to follow "rules" imposed by the Eurozone.


To the Local -Why was this story so far away from the importance it deserved?
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