Business News : Oil not second round price effects driving inflation: Weidmann

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BERLIN (Business News) - Euro zone inflation is above target mainly because of high oil prices but the European Central Bank must remain vigilant that this does not translate into higher inflation expectations among citizens, Bundesbank President Jens Weidmann was quoted as saying.


Weidmann, who sits on the ECB's 23-member Governing Council, said there was no sign yet that higher inflationary expectations were taking hold of wage demands and hence price growth in the euro zone economy.

The ECB targets inflation of just below two percent and it currently stands at 2.7 percent.

"At the moment we are above (the target) but that stems above all from the elevated oil price -- and over that we have practically no influence," Weidmann said in an interview for the Welt am Sonntag newspaper released on Saturday.

The ECB has cut interest rates in the euro zone to a record low of one percent and debt market players wonder if a return of tensions around Spain will prompt the bank to restart its bond-buying program to dampen the sovereign debt crisis.

Weidmann has led calls for the bank to begin planning an exit from its crisis mode, but in the interview he played down any suggestion that he was isolated in the ECB.

He said it was normal for there to be "quite intensive discussions" in the bank at a time of such uncertainty and given the special measures taken.

"I am no outsider... I feel thoroughly comfortable in the ECB Council," said Weidmann.

"The bank is currently in a very difficult situation... For this reason we have quite intensive discussions in the ECB Council but I find this proper," he said.

Weidmann reiterated his view that the euro would survive its sovereign debt crisis but said heavily indebted countries must give priority to fiscal discipline to regain investors' confidence.

In a wide-ranging interview for Business News earlier this week, Weidmann, 44, said Spain and other struggling euro zone countries should take a rise in their bond yields as a spur to tackle the root causes of their debt woes and not look to the ECB to help by buying their bonds.


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