Schäuble ready to tolerate German inflation

10-May (Financial Times) — Wolfgang Schäuble, German finance minister, has given vital political cover to the Bundesbank, speaking out in support of the idea that Germany could tolerate a rate of inflation above the eurozone average.

Making a rare exception to the rule that Berlin does not comment on central bank policy, Mr Schäuble declared that price rises “in a corridor between 2 and 3 per cent” would be “tolerable” in Germany – slightly above the European Central Bank’s target of keeping average inflation across the eurozone at close to but below 2 per cent.

His statement followed comments before a parliamentary committee on Wednesday by a Bundesbank official, who cautioned that the eurozone’s largest economy might face “an inflation rate somewhat above average” as the likes of Greece and Portugal squeezed prices and wages to regain competitiveness.

Mr Schäuble’s comments seemed aimed at helping prepare an inflation-averse public for higher price rises to counter the deflationary effects of restructuring policies on the eurozone’s periphery.

[source]

PG View: The sudden German tolerance for above-target inflation is likely reflective of just how dire the situation in Europe has become. Perhaps it’s just a false flag to lend support to the market, while the Greek political crisis sorts itself out…if that’s even possible. If however, the tolerance is legitimate; can the inflation inducing policy be far behind?