Professor Wieland, the inflation rate in the euro area has risen to more than 5 percent.

Is the ECB still reacting too cautiously at the moment?

Christian Siedenbiedel

Editor in Business.

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Yes, so far.

If you have to repeatedly revise your forecasts, you should adjust your monetary policy accordingly.

Do you expect inflation to disappear again soon?

In 2020, the oil price was relatively low and VAT in Germany was temporarily reduced.

This has contributed to the high inflation rates in 2021.

The base effect no longer influences the 12-month comparison since January of this year.

But the resulting decline was smaller than expected.

I continue to expect consumer price inflation to ease over the course of the year.

However, slower than previously expected.

This means that inflation in the euro area this year could be well above the ECB's forecast of 3.2 percent last year.

Next year it is likely to be more than 2 percent rather than just under, as the ECB expects.

Any other signs that inflationary pressures remain high?

There are several.

One example is the high industrial producer prices.

There is further pressure to pass price increases on to consumer prices.

In the United States, wages have already responded significantly to rising inflation.

It would be illusory to think that workers in Europe will sustain a sharp loss of real income.

After all, normalizing inflation at 2 percent must go hand in hand with normalizing interest rates.

What would be an appropriate ECB response next?

The ECB should end net asset purchases under the PEPP program.

In addition, the net purchases under the other programs, particularly government bonds, should not be expanded, but scaled back faster than planned.

This opens up the possibility for the ECB to raise interest rates in the course of this year – for example to abolish the negative deposit rate of 0.5 percent.

Can waiting and waiting mean that at some point it is too late?

The central bank risks that higher inflation rates will become entrenched and that inflation expectations will rise.

If the central bank waits so long and then later wants to get it out of the system again, it will have to step on the brakes and, if necessary, accept a decline in economic output.