September 10, the date of the next ECB meeting, is approaching and expectations are for a total confirmation of the accommodative monetary policy footprint. The new rise in German inflation, which jumped to the top from 13 years in August, does not seem capable of changing Eurotower plans. “When the ECB meets again next week, it will most likely stick to its rather favorable view of inflation driven by a series of one-off factors with no side effects in sight,” argues Carsten Brzeski, an economist at Ing. by Philip Lane and Isabel Schnabel actually pointed to inflation projections far below 2% in 2022 and 2023. “We doubt that the new ECB staff projections will present a significantly changed picture”, is the forecast of Ing which underlines how surprisingly, high German inflation is not just the result of the underlying effects of low prices during lockdowns. Indeed, comparing the August price levels with the January 2020 level shows that prices have also increased by more than 4%.
Indeed, continues Brzeski, monetary policy can hardly reduce inflation driven mainly by one-off factors. Therefore, the ECB’s current favorable stance on inflation makes sense, even if the recognition that people actually have to pay higher prices would help future dialogues with eurozone citizens. “Looking at next week’s meeting, it is difficult to imagine that the ECB will change anything in its communication”, concludes the expert.
In August, German inflation stood at 3.4% per annum on a harmonized basis (from 3.1% in July). These are the new highs for 13 years.