The head of the Bundesbank is calling on the ECB to reduce bond purchases

The head of Germany’s central bank has called for a “step-by-step” reduction in bond purchases linked to the European Central Bank’s pandemic, and warned that inflationary pressures in the eurozone are rising.

Jens Weidmann said there are “upside risks” to forecasting inflation and that energy prices may be higher than economists expect in policies to tackle climate change.

Weidmann said in a statement on Monday that the ECB’s program to alleviate the economic impact of the pandemic should end “as soon as the state of emergency is over.”

His statements clashed with other members of the central bank’s governing council about the future path of his policy. Politicians will meet next month, but hope to announce the decision by September.

“Inflation is not dead,” said Weidmann, one of the most conservative hawks on the ECB’s governing council. He compared inflation to the giant Galapagos tortoise, which was classified as badly extinct for 100 years.

Eurozone inflation pink At 2% in May, the rate exceeded the ECB’s target for the first time in more than two years, although economists expect Wednesday’s new data to show a slight drop in June. Although the central bank has announced that price growth will disappear next year, Weidmann has stressed the need to “be vigilant”.

“In my opinion, the risks to price forecasts have changed,” he said, noting that there are “upside risks to price developments in the eurozone.”

Inflation will continue to rise next year if oil prices fall sharply as expected, and said: “Moreover, politicians can take additional measures to protect the climate and thus raise energy prices.”

A German carbon tax helped inflation in Europe’s largest economy rise to 2.4% in May, the highest in more than two years. Weidmann said inflation could rise to 4 percent in Germany this year, adding: “This reduces the purchasing power of private homes.”

“Thanks to the progress of the vaccine, the eurozone economy is on track to emerge from the crisis,” the Bundesbank head said, adding that this has “consequences” for the ECB’s emergency procurement program (PEPP), its main crisis. -fighting policy.

The ECB boosted the pace of the PEPP in March and has more than € 700 billion to spend on the program at least € 1.85 billion of the total by March 2022.

The purchase of bonds will stop when the ECB judges when the coronavirus crisis is over. Weidmann said the PEPP should be removed when all “significant” containment measures were removed and the economic recovery was “strong”, adding that in the first quarter of 2022 the eurozone would reach pre-pandemic production levels.

“To avoid having to end PEPP abruptly, however, net purchases can be reduced step by step in advance,” he said.

His comments were made by Fabio Panetta, a member of the ECB’s board of directors a lecture on Monday: “We don’t seem to be on the right track to warming the economy.” He warned that “the economy is likely to remain stagnant for a long time to come.”