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ECB Director Isabel Schnabel: "There is an upside risk"
Photo: Ralph Orlowski / REUTERS
When she talked about German inflation concerns over the past few weeks and months, Isabel Schnabel had one message first and foremost: don't panic!
"We are assuming that the peak of inflation will be reached in November," said the German ECB director on ZDF at the end of November.
There is no evidence that "inflation is spiraling out of control."
Now Schnabel has obviously changed her mind a little.
In an interview with the French daily newspaper »Le Monde«, she predicted that consumers in the euro area would probably have to live with higher inflation rates for a while longer.
“We know that inflation will be high for a while, but also that it will decrease over the course of the next year.
We are less sure about how fast and how strong the decline will be, ”said Schnabel.
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Price increases in the shopping cart: Inflation has been at its highest level for almost 30 years
Photo: Fabian Sommer / dpa
The central bank wants to ensure stable prices in the currency area of the 19 countries with inflation of two percent in the medium term.
In the coming year, the monetary authorities are expecting an annual average price increase of 3.2 percent, primarily due to energy prices.
"There is an upside risk"
»We are well aware of the uncertainty in our inflation forecasts.
There's an upside risk, ”said Schnabel.
"We should take a risk management approach so that we can react quickly if there are signs that inflation is consistently above our two percent target."
The ECB explains the sudden rise in inflation primarily with "special factors" that should weaken again in the course of 2022: these include the rise in oil prices after the corona shock and the supply bottlenecks due to increased demand.
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The German Economic Institute (IW), which is close to the employer, is already warning of a wage-price spiral that could cause inflation to rise even faster.
Certain price drivers such as high energy costs do not justify higher wage demands, the institute writes, as they hit employees and employers alike: »The mistakes after the oil price shocks of the 1970s, when attempts were made to compensate for the loss of prosperity of employees with higher wages and pass it on to employers, should not be repeated. "
Billions for government bonds and stocks
Critics accuse the ECB of fueling inflation with its flood of money.
At the most recent meeting of the Governing Council, the central bank's highest decision-making body had sent the first signal that the ultra-loose monetary policy was coming to an end: the ECB will only purchase additional securities as part of its PEPP corona emergency program until the end of March.
However, the central bank is still investing billions in government bonds and corporate papers.
"We have taken an important step towards normalizing our monetary policy," said Schnabel.
“This has to be a gradual process - it cannot all happen at once.
If we react too quickly, there is a risk that the upswing will be stalled by an overly abrupt tightening of financing conditions. "
rai / dpa