ECB’s Weidmann: Shouldn’t Ignore Inflation Risks; Need to Be Vigilant

17 December 2021

By David Barwick – FRANKFURT (Econostream) – Monetary policymakers need to be attentive to the predominantly upside inflation risks in the euro area, European Central Bank Governing Council member Jens Weidmann said on Friday.

Quoted in a press release with the latest macroeconomic projections of the German Bundesbank, which he heads, Weidmann said, ‘The risks for the inflation rate are skewed to the upside, both in Germany and in the euro area as a whole. Monetary policymakers should not ignore these risks. We need to be vigilant.’

According to Weidmann, who is leaving the Bundesbank and thus the Governing Council at month’s end, the German economic ‘upswing has been slightly delayed’, with growth this year seen at 2.5%, down from the June projections, and then at 4.2% and 3.2% in 2023 and 2024, respectively.

German HICP, according to the central bank, would hit 3.2% this year and 3.6% next. ‘At 2.2% in 2023 and 2024, too, however, it will still remain relatively high – not only on account of strongly rising wages and the favourable economic situation, but also due to the costs associated with the transition to a climate-neutral economy’, the Bundesbank said.

Following the dent in growth in the current and next quarter due to the pandemic and supply constraints, German private consumption would rise ‘substantially’ on the back of accumulated savings, the Bundesbank said.

‘For a period of time, consumers will spend more of their disposable income than they did before the pandemic’, Weidmann said.

With the resolution of supply bottlenecks by end-2022, German exports would surge, the Bundesbank predicted.

‘As a result of the strong upswing, aggregate capacity will be utilised to an above-average degree again from as early as the second half of next year’, Weidmann said.