FRANKFURT (Reuters) – With the euro zone recovery gaining strength, inflation would continue to rise even if the European Central Bank reduced stimulus, Bundesbank President Jens Weidmann said on Wednesday.
The comments suggest that Weidmann, a long-time critic of the ECB’s exceptional stimulus, considers inflation self- sustaining, one of ECB President Mario Draghi’s top criteria before the policy can be removed.
“The strengthening of the economic recovery makes it increasingly likely that the rise in inflation we have seen since August 2016 is not just a flash in the pan, but that we would have higher inflation rates compared to previous years even under a reduced degree of monetary policy accommodation,” Weidmann said.
Many of Draghi’s top allies disagree, however, arguing that inflation, now at 1.4 percent, would fall back if the ECB eased off the accelerator, putting the bank’s near 2 percent target further out of reach.
“In my view, the current economic outlook together with the improvement in the balance of risks suggests that the Governing Council is beginning to discuss whether and when it will be time to adjust our forward guidance,” Weidmann added.
The ECB will next meet on June 8 and will likely take a more benign view on the economy but not make significant policy changes.
The ECB does not expect to reach its target before 2019.
(Reporting by Balazs Koranyi Editing by Jeremy Gaunt)