In view of the steep rise in inflation rates, there are increasing calls for an end to the European Central Bank’s glut of money in the financial sector. “The supposed panacea in recent years – low interest rates at supposedly stable prices – has lost its effect, because now we are struggling with their side effects,” said Deutsche Bank boss Christian Sewing on Monday at the start of Euro Finance Week in Frankfurt. Monetary policy must take countermeasures – “sooner rather than later,” warned Sewing, who is also President of the Association of German Banks.
Cornelius Riese, co-head of the leading cooperative institute DZ Bank, recalled that in view of the comparatively low inflation rates at the time, the ECB had warned against deflation in recent years, i.e. a decline in prices on a broad front as a risk for the economy. “For me the question arises: Where is the awareness of the problem, the ECB’s communicated awareness of the problem, what is analog, what is synchronous with the topic of inflation?” Said Riese.
Inflation rates in Germany and the euro area have been rising for months. In Germany, for example, consumer prices in October were 4.5 percent above the level of the same month last year. Inflation is currently as high as it was 28 years ago.
The ECB explains the increase largely with special factors such as the recovery in oil prices after the corona shock and delivery bottlenecks as a result of increased demand. In addition, the withdrawal of the temporary VAT cut is having an impact in Europe’s largest economy, Germany.
But a number of economists and bankers warn against underestimating the development. “We also see that the subject of inflation is not quite as temporary as it is possibly postulated from political circles,” said the new head of HSBC Germany, Nicolo Salsano.
Sewing reiterated: “And with a view to the stability of monetary value, what I hear in conversations with our customers makes me personally skeptical. They are all preparing for the fact that the high inflation rates will last longer. And we know what that means: they are rising Expectations of inflation, then usually inflation will rise at some point – in the longer term. ” Critics accuse the ECB of using the cheap money to fuel inflation, which it actually wants to keep in check. The Governing Council wants to decide on December 16 how to proceed with the billion dollar bond purchases. According to current planning, the PEPP (Pandemic Emergency Purchase Program) purchase program launched to cushion the corona shock should run until at least the end of March 2022.