Former economist Volker Wieland warns against acceleration of inflation through relief packages: “If all states implement measures like Germany, this counteracts the ECB’s fight against inflation”.
Monetary policy expert and former economist Volker Wieland expects that the European Central Bank will follow up with further hikes of a similar magnitude against the record inflation after the recent sharp increase in key interest rates. “There is still room for two more rate hikes of 0.75 percent, just to meet market expectations,” said the economist of the “Augsburger Allgemeine”. The relief packages announced by Germany and other countries would also put the ECB under further pressure to act.
“The 200 billion provided by the federal government corresponds to 5.6 percent of the gross domestic product in 2021,” he explained. “If all states implement such measures, this will of course thwart the ECB’s efforts to combat inflation,” warned Wieland.
According to Wieland, the planned gas price brake will fuel inflation in Germany. “For households, these are in any case direct transfers and that will support inflation, you have to be aware of this effect,” said the economist. Mistakes made by the ECB in the past are also currently having a negative impact: “Inflation is not solely due to the energy crisis,” emphasized the economist. “An initial basis was laid by the support programs during the Corona period. This was supported by the ECB as it has been buying government bonds on a large scale. She failed to change course earlier in 2021.”
The interest rate move by the ECB is therefore necessary. “I wouldn’t have thought an increase of one percent wrong either,” said the economist. It would take more to vigorously combat inflation, because this would keep the real interest rate negative for the foreseeable future. “Monetary policy is thus continuing to support demand,” warned Wieland. “However, we are not in a demand-driven recession, the labor market remains stable and there is a shortage of workers. Accordingly, the loss of purchasing power is followed by high wage demands.”