BERLIN, June 18 (Xinhua) -- German Central Bank (Bundesbank) on Monday issued a stark warning against proposals to raise official inflation targets.
In a monthly report, experts at the Frankfurt-based institution argued that raising annual inflation targets would destabilize financial markets and undermine the credibility of central banks.
The warning came in a background that suggestions to alter current approaches to the management of consumer price growth are currently being debated across several national and international monetary institutions.
Proponents of a higher inflation target have cited the experience of the 2007-2008 financial crisis as showcasing an excessive deflationary bias the widespread annual goal of close to, but under 2 percent of inflation rate.
Among others, the U.S. treasury department has come out in favor of targeting a faster pace of inflation as empowering monetary authorities to take more effective action to restore growth in the event of an economic slump.
Pushing back against the unorthodox proposal, the traditionally-hawkish German Central Bank cited surveys on Monday which were indicative of a "basic dislike among the public against high inflation rates." Germans in particular are known to be particularly sensitive to the issue, a circumstance which is often attributed to the experience of hyperinflation in the Weimar Republic.
Nevertheless, the German Central Bank expressed confidence that Germany would be able to sustain its current phase of long-lasting growth without a higher inflation target. It reiterated an earlier forecast in its report that gross domestic product (GDP) would grow by an annual rate of 2.0 percent in 2018, 1.9 percent in 2019 and 1.6 percent in 2020.
The country would hence continue to experience "strong economic momentum" characterized by "rising wages and domestic inflation", as well as "growing pressure on the productive capacities" of companies, a statement by the central bank president Jens Weidmann read.
Yet in spite of the largely positive outlook, the central bank also warned of growing risks on the horizon. Weidmann cautioned that the "uncertainties for the outlook on the Germany economy have increased substantially", pointing to the adverse effects of the "America First" policy adopted by U.S. President Donald Trump in particular.
