Bundesbank denies it will allow German inflation to rise

Bundesbank president Jens Weidmann has categorically denied that the German central bank is prepared to tolerate higher inflation in order to improve the situation in the debt-mired eurozone.

Such recent talk was an “absurd debate,” he said in comments in Friday’s Sueddeutsche Zeitung daily, stressing that the Bundesbank was mandated to maintain the annual inflation rate at around two percent.

His comments were a swift riposte to German Finance Minister Wolfgang Schaeuble, who said Thursday that an inflation rate of up to three percent was tolerable, despite eurozone rules setting a target of around two percent.

“In Germany, two to three percent is a range that is still acceptable,” Schaeuble told reporters when asked about a potential easing of Germany’s strict anti-inflation stance in light of the debt crisis.

Schaeuble’s intervention came after a Bundesbank economist suggested one potential way out of the eurozone crisis was to boost domestic demand in Europe’s top economy and tolerate the slightly higher German inflation this could produce.

In considering such a rise in inflation, Germany appears to be responding to accusations that its stance on exports, salaries and prices takes no account of the needs of its European partners.

However, any move to allow an increase in the inflation rate revives in Germany memories of the hyperinflation in the 1930s that preceded the rise of the Nazis.

“If, at the advice of the ECB (European Central Bank), we keep watch to make sure that average inflation doesn’t rise above two percent, then inflation will not cross that threshold in Germany. Our citizens can have confidence in the vigilance of the Bundesbank,” said Weidmann.