Weidmann Hints at Upgrade to ECB's 2017 Inflation ForecastBy and
ECB publishes updated economic projections next week
Price growth may be 0.5pp higher than current prediction
Jens Weidmann became the first policy maker to provide clues on how much the European Central Bank may raise its inflation forecast next week after a rally in oil prices and a pick-up in economic momentum.
“Inflation this year is likely to be well in excess of the figure projected to date,” the Governing Council member said Wednesday in a speech in Ljubljana, Slovenia. The projection for Germany could be raised by half a percentage point “and this might also be the case for the euro area as a whole,” he said.
The ECB, which will update its outlook during a policy meeting next week, currently expects the rate to average 1.3 percent in 2017, based on data that did not include a surge in energy prices in December. Weidmann said that strong inflation in recent months will probably moderate to lower levels later this year, but that a robust economic upswing will continue to gradually drive price pressures.
The German central banker’s comments came shortly after the country’s Federal Statistics Office reported that inflation broke through the 2-percent mark for the first time in more than four years in February. Price growth in Europe’s largest economy -- currently at 2.2 percent -- has sparked outrage among some politicians and economists, who have called on the ECB to scale back stimulus.
“Prices in Germany are now increasing faster than in other countries,” Weidmann said. “I’d say that’s a normal result of our cyclical situation being better than that in other countries. And that is part of the adjustment.”
A continued pick-up in euro-area inflation will likely feed into the Governing Council’s policy debate when it meets on March 9. Economists predict the rate rose to 1.9 percent in February, according to a Bloomberg survey.
While an accommodative policy certainly continues to be appropriate, according to Weidmann, “opinions differ over the right degree of monetary accommodation and the point in time at which the price outlook will have firmed enough to justify a change in communication and ultimately in the monetary-policy stance.”
ECB President Mario Draghi said after the Governing Council’s last meeting in January that forecasts were likely to be revised up due to base effects and oil prices, but that he and his colleagues will ask themselves whether that satisfies their objectives.
“The outlook for headline inflation over the next quarter or two quarters maybe is higher than it was foreseen in the previous macroeconomic projections,” Draghi said at the time. “The key question now is what is the extent of second-round effects coming from this higher inflation? We’ll certainly look at that with great attention.”