Ms. Schnabel, the European Central Bank (ECB) has set itself a new, higher inflation target of two percent.

Do people have to fear higher inflation now?

Patrick Bernau

Responsible editor for economics and "Money & More" of the Frankfurter Allgemeine Sonntagszeitung.

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    Dennis Kremer

    Editor in the "Money & More" section of the Frankfurter Allgemeine Sonntagszeitung.

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      No. For one thing, the increase in the inflation target is minimal. On the other hand, a target of two percent has an important function: It creates additional leeway so that our monetary policy can develop its stabilizing effect. In bad times, like the pandemic, it stimulates the economy with low interest rates and thus has a significant positive impact on economic development and the labor market. However, interest rates are already so low today that they can hardly be lowered. This is not primarily due to the ECB. The desire for savings is very great, for example due to demographic development, while the demand for investments is rather low. That is why interest rates have been falling worldwide for many years.The new inflation target ensures our room for maneuver and benefits people.

      If inflation rises too high, it's no good either.

      That's true.

      The two percent target will continue to protect people from a noticeable loss of purchasing power.

      What do you do when inflation overshoots this target?

      Our goal is symmetrical: so it may be that the inflation rate is sometimes a little above or below it.

      We look through short-term deviations.

      We consider persistent deviations upwards and downwards to be equally harmful.

      However, if we are close to the zero interest rate limit, it is necessary to take particularly strong or sustainable countermeasures in order to ensure price stability.

      That could mean that inflation is temporarily slightly above the two percent target.

      There was unanimous support for this in the Governing Council.

      That means: Bundesbank boss Weidmann has also agreed.

      Unanimously means unanimously.

      In Germany, an inflation rate of four percent will soon be reached.

      Could it be that the ECB has already lost control of inflation?

      No, this development is temporary. In Germany there is currently a relatively high inflation due to the pandemic. We will see that from July - one year after the VAT cut - when prices rise particularly sharply compared to the previous year, which is, however, due to the price reduction at that time. The recovery in oil prices has a similar effect. The Bundesbank is forecasting inflation of just over four percent for Germany at the end of the year, but a significant decline in the following year. Because of such short-term fluctuations, monetary policy is based on medium-term price developments throughout the euro area. Our medium-term inflation forecast is cautious: only 1.4 percent in 2023. This is fraught with uncertainty. But I am sure,that we will not see excessively high inflation.

      What is it that makes you so sure?

      We are going through an extraordinary situation.

      First the economy was closed, then it was reopened unexpectedly quickly.

      As a result, demand has risen sharply, but supply has not been able to keep pace.

      Think about the supply chain problems.

      What if it goes on like this?

      We will watch this closely.

      Whether the price increase continues depends largely on whether wages also rise and inflate through second-round effects.

      So far we have seen little of this - also in Germany.

      At what level will the ECB intervene?