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TV interview with ZDF Morgenmagazin

Interview with Isabel Schnabel, Member of the Executive Board of the ECB, conducted by Mitri Sirin on 29 November 2021

29 November 2021

Producer prices, which are an indicator of inflation, grew by 18.4 per cent within a single month. This was the steepest rise since the 1950s. What do you make of that?

I can see why many people are currently worried about very high inflation rates. We have all been seeing prices go up all around us – whether while buying bread or paying our heating bill. But we need to understand that it has to do with the very unusual situation the economy is in because of the pandemic. After the lockdowns, the economy restarted surprisingly quickly, demand rose and firms could no longer keep up. This is why we are seeing supply bottlenecks and shortages. This affects commodities, mostly energy, and input products such as microchips. There are also one-off statistical effects at play – inflation rates are high now because prices were exceptionally low a year ago. In other words, we are comparing today’s prices with the very low prices at the height of the pandemic. But if we look at the comparison with the prices before the pandemic, so over the past two years, the average inflation rate for Germany is only around 2%.

It was initially thought, also by the ECB, that this had all to do with the one-off effects from the coronavirus. That view may now have changed. The inflation rate was 4.5% in October and is expected to rise to 6% in November. How much longer is it going to last, in your opinion?

Many people were not expecting prices to increase to this extent. But we believe that the inflation rate will peak in November and gradually subside next year, towards our inflation target of 2%. Indeed, most forecasts expect inflation to fall even below that 2% level. So there is no indication that inflation is getting out of control.

Let me sum up. As you said at the start, we have shortages of commodities and of workers, severe supply bottlenecks and then there’s also this powerful inflation. Everything is coming at us at the same time. So what does this actually mean for consumers? Will this now keep spiralling, perhaps without governments intervening?

You have to realise that the supply bottlenecks will gradually ease. Energy prices, too, will not keep increasing as rapidly and the one-off statistical effects will progressively drop out of the calculations. That means that inflation developments will not continue at the same pace. You also have to remember that the ECB is committed to the objective of price stability. So if we see that inflation could persistently remain at a level above 2%, we will of course respond decisively. At present, however, we are not yet seeing such indications.

How do you intend to respond?

We have the toolkit to tighten monetary policy, of course. But at the moment it would be a mistake to raise interest rates prematurely and thus put a brake on the recovery. That would essentially result in higher unemployment and would not have any impact on the current extremely high rate of inflation.

Producer prices, which have recently soared, are a major problem. We’ve touched on commodities prices. When do you think these prices will fall again? Because that is basically the only thing that consumers are interested in right now.

The degree of uncertainty is indeed significant. What we hear is that firms also assume that these bottlenecks will persist for longer than originally thought. Some sectors even expect that they will last well into next year. But all in all, this will recede. We don’t know exactly how fast. There is a lot of uncertainty about it but the consensus is that these large price increases will not last.

It will of course have to fall back at some point but I think we will need to stick it out for a little longer. That’s how it sounds to me. ECB Executive Board member Professor Schnabel, many thanks. The Federal Statistical Office is today publishing the new rate of inflation for November. Many thanks and have a good day.

Thank you very much for this conversation.


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