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Finance Minister OKs three percent inflation

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Finance Minister OKs three percent inflation
Photo: DPA
16:57 CEST+02:00
German Finance Minister Wolfgang Schäuble said on Thursday that a German inflation rate of up to three percent was tolerable, despite eurozone rules setting a target of around two percent.

"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.

"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.

AFP/jcw

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