Low Inflation In Germany A Headache For ECB As It Embarks On Reducing Its Fiscal Stimulus Program

As the European Central Bank attempts to gradually eliminate the stimulus programme, it is estimated that the bank would face some challenge next year indicated by the slow inflation rate in Germany.

Germany’s Federal Statistics Office said yesterday that 1.6 percent rise was marked in the consumer prices. While it is higher than the average median forecast of 1.4 percent, it was the lower than the figure in November when the rate was 1.8 percent.

Despite the fact that there has been a recovery in global trade which has boosted German exports and investments and the unemployment rate is at a historic low encouraging private consumption, the rate if inflation continues to be subdued in Germany.

Earlier this month, the Bundesbank projected that the momentum would be strong till 2018 for the German economy as it uplifted its growth projections for the largest European economy through to 2019. The bank predicted rise in inflation to 1.9 percent in 2020

It would be in a week that the data for the euro area would be out and it is expected that the data would show a slowing down of annual rate to 1.4 percent.

Projections from the ECB have predicted a temporary slowdown of inflation in the forthcoming months while it predicts that the macroeconomic indicator would again rise later in 2018.

ECB President Mario Draghi expects that underlying price pressures would gradually rise during the medium term because the euro-area economy is expected to perform its best in about a decade. However, he did not commit to accepting that the inflation targets for 2020 would be met. Starting next month, the asset purchase program of the ECB would be halved to €30bn ($36bn) as the bank would also with the buying until September 2018.

“Although we expect modest tapering from the ECB’s current €60bn monthly pace of purchases to begin at some point in the first half of 2018, a sizeable percentage of public debt is at fixed rates and consequently the benefits of the ECB’s asset purchasing programme have been locked in,” said the authors of BMI Research’s ‘Ireland Country Risk Report’ for 2018.

(Adapted from Independent.ie)


Categories: Economy & Finance, Strategy, Sustainability

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