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ECB’s Schnabel Sees German Inflation Climbing Above 3%

ECB’s Schnabel Sees German Inflation Climbing Above 3%

German inflation could climb above 3% as the economy recovers from the pandemic, but it won’t last and the European Central Bank will look beyond such volatility, Executive Board member Isabel Schnabel said in an interview.

“What we see is that very pronounced fluctuations in inflation have emerged because of the pandemic,” Schnabel told German broadcaster RTL/NTV. “Our monetary policy strategy is oriented to the medium term, and this means we look through these short-term fluctuations.”

The ECB, which focuses on the euro zone as a whole, has used an emergency bond-buying program, negative interest rates and long-term banks loans to counter the damage to the economy from the Covid-19 crisis.

The bloc slid into a double-dip recession in the first quarter, held back by a chaotic start to vaccinations and the slow rollout of a joint fiscal stimulus fund. In contrast, the U.S. has powered ahead with faster inoculations and a bigger stimulus package which is fueling concerns of higher inflation.

Schnabel said that there is no sign accelerating inflation is becoming entrenched in the euro area, but if it did, the ECB would react carefully by adjusting its measures.

Officials have said they expect a heated debate at the central bank’s next policy meeting in June over whether to start slowing monetary stimulus as coronavirus restrictions are loosened and the economy starts to recover.

‘Purely Speculative’

French Governing Council member Francois Villeroy de Galhau on Tuesday labeled talk about paring back bond purchases before the ECB’s emergency program ends in March 2022 as “purely speculative.”

“Our monthly volume of purchases will remain freely determined to the end by our will to guaranteed favorable financing conditions for all economic agents,” he said in a separate interview with France Info TV.

The ECB is currently reviewing its inflation goal of just below 2%. Policy maker Olli Rehn, who heads the Bank of Finland, told the Financial Times at the weekend that it may be worth accepting an overshoot of the inflation target to focus on employment and offset years of sluggish price growth.

©2021 Bloomberg L.P.