German consumer prices to surpass ECB target this year: Weidmann

BERLIN: Higher taxes should by the end of this year push inflation in Germany to well beyond the European Central Bank's target of below but close to 2%, Bundesbank chief Jens Weidmann said in remarks published on Friday.

Weidmann, in an interview with the Augsburger Allgemeine newspaper, cited reduced value added tax (VAT) that expired at the end of last year and a tax on greenhouses gas emissions that went into effect on Jan. 1.

"From today's perspective, the (EU) harmonised consumer price index in Germany should rise to above 3% until the end of the year," said Weidmann. "One thing is clear: the inflation rate will not remain as low as last year permanently."

German consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose by 1.6% year-on-year last month after declining by 0.7% in December.

A flash estimate early this month showed that consumer prices in the 19 countries sharing the euro rose 0.2% month-on-month in January for a 0.9% year-on-year jump.

Analysts expect prices in Germany to rise if Europe's biggest economy starts lifting lockdown measures in place since November to contain a second wave of the coronavirus.

The European Central Bank (ECB) has been missing its inflation target for years despite ultra low interest rates and buying hundreds of billions of euros in government bonds to inject liquidity into the banking system.

Weidmann, who also sits on the ECB's Governing Council, said if inflation rises, the central bank would have to act accordingly.

"If the price outlook requires it, monetary policy will have to tighten its strings," he told the Augsburger Allgemeine. "At the moment it is about fighting the consequences of the pandemic. So monetary policy became even more expansive."