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ECB’s Schnabel Tries to Allay German Fears as Inflation Quickens

ECB’s Schnabel Tries to Allay German Fears as Inflation Quickens

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The European Central Bank doesn’t currently see risks posed by rapidly rising consumer prices but it is diligently monitoring the situation and will act decisively if increases become sustained, Executive Board member Isabel Schnabel said. 

“The prospect of persistently excessive inflation, as feared by some, remains highly unlikely,” Schnabel, the German official in charge of markets, told an audience in the southwest of her country. “But should inflation sustainably reach our target of 2% unexpectedly soon, we will act equally quickly and resolutely.”

ECB’s Schnabel Tries to Allay German Fears as Inflation Quickens

The ECB is closely watching factors that could cause price increases to become entrenched, which include long-term supply bottlenecks, structural changes in the economy, and shifting expectations, she said. 

German consumer prices rose 3.4% in August, the most since 2008, driven by special factors such as the reversal of a sales-tax cut and higher energy costs. The Bundesbank has said inflation could hit 5% later this year before slowing down again in 2022. The ECB also predicts a slowdown next year for the rate in the overall euro region. 

ECB’s Schnabel Tries to Allay German Fears as Inflation Quickens

Schnabel’s speech coincides with a German election campaign where inflation has featured, without dominating the discourse. Social Democratic candidate Olaf Scholz, the front runner in polls, last week said consumer prices need close monitoring, while citing widespread expectations that recent gains are temporary. 

Schnabel said it’s “important to offer a factual explanation for the recent price increases and an assessment of future risks, especially in Germany, where many supposed experts and the media are again rousing people’s fears.” 

She added that ECB monetary policy can’t only be determined by conditions in that country, where inflation is significantly faster than in euro members such as Greece. 

©2021 Bloomberg L.P.