The Achim Truger economy does not see a new inflation regime looming despite the recent sharp rise in prices. It was foreseeable that inflation would rise due to rising energy prices and corona-related delivery bottlenecks.
“The higher inflation will also last longer than originally expected because the disturbances last longer. But I don’t see any cause for concern, ”said Truger in an interview with Handelsblatt. “In the course of this year, inflation should fall again.” For example, some special effects such as the VAT, which was raised again in 2022 after a temporary reduction, would be eliminated. There are also no broad wage increases in sight that would drive inflation further.
In the debate about building a climate reserve from unused corona debts, Truger asked the federal government to readjust its plans. “If you define three or four blocks of expenditure with upper limits and make it clear to what extent this serves to overcome the consequences of the corona, that would certainly make the climate reserve even more constitutional,” said Truger.
Read the full interview here:
Mr. Truger, the inflation rate climbed to 5.3 percent in December. Do we need to worry?
It was foreseeable that inflation would rise due to rising energy prices and corona-related delivery bottlenecks. However, it was not foreseeable that prices would rise so sharply. Also, the higher inflation will last longer than originally expected because the disturbances last longer. But I don’t see any cause for concern. Inflation should decrease again later this year.
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What is it that makes you so sure? The Bundesbank expects inflation to be even higher this year than last year.
Yes, on an annual average. With its forecast, the Bundesbank might also want to send a signal that the dangers of inflation should not be underestimated. You shouldn’t either. However, the vast majority of forecasts assume that inflation rates will fall again over the course of the year as the disruptive factors and special effects such as the renewed increase in the temporarily lower VAT have subsided. The decisive factor is whether wages rise as a result of higher inflation, whereupon prices rise again, so we get caught in a wage-price spiral. There is currently nothing to suggest such a spiral; the foreseeable wage increases are moderate.
The US Federal Reserve, however, is tightening monetary policy much more than the European Central Bank.
The situation in the USA is completely different. Inflation is higher, financial policy is more expansive and the economy is more buoyant. In this situation, the US Federal Reserve can tighten monetary policy more. In Europe, however, the upswing is shifting backwards as a result of the Omikron wave. I think it is entirely appropriate that the ECB initially indicated a more cautious exit from its loose monetary policy.
Is the ECB pursuing a more cautious policy out of consideration for the south of Europe, because some euro countries could get into financing problems if the ECB no longer finances their debts on a massive scale?
I do not think so. The ECB is trying to achieve its inflation target with its bond purchases. If you look at the debt level and the interest burden in southern European countries, they can certainly handle slightly higher interest rates. And if the upswing takes place as hoped after the end of the pandemic, their debt level should decrease, even with higher interest rates.
With Joachim Nagel there is a new Bundesbank President. A good choice?
I could well have imagined a woman at the top of the Bundesbank, but I have no doubt that Joachim Nagel will do his job well.
Many citizens expect the Bundesbank president to get inflation under control. How is Nagel supposed to do that within the Governing Council, where the Bundesbank was last isolated?
The Bundesbank is no longer responsible for monetary policy, but Joachim Nagel can of course exert influence on the Governing Council. And of course the Bundesbank can make a contribution, for example the very well-established research department with its studies.
The latest inflation forecasts were all completely wrong: ECB, Bundesbank, economists. Why?
We are all experiencing such a pandemic for the first and hopefully only time in our lives. It was difficult to foresee that the supply chains would not only jerk, but hook up. Nor are the spikes in the oil price. The latest corona wave is something else. I would self-critically admit that many, including the Advisory Council, did not warn of this in good time. As in the previous year, we could have assessed the effects. However, the economic picture that was drawn in the previous year is still intact: the recovery is on the horizon, but is shifting.
So no further measures to support the economy are necessary?
The most important thing continues to be the support for the affected companies and employees. The new federal government has also quickly extended the corona aid.
What should the government do if more action was needed?
Many investment measures from the coalition agreement will support the recovery anyway. Above all, financial policy must not go too early on a consolidation course and must be ready, if necessary, to give it another boost.
The traffic light government wants to “dare a new departure”. Is your financial policy a new departure?
Judging by how different the three election programs were, it is noteworthy that the coalition agreement is giving clear signals of a new direction in terms of financial policy. The traffic light has pragmatically agreed on a whole bunch of instruments to be able to invest more in climate protection, infrastructure and housing.
So you are now a fan of the new Federal Finance Minister Christian Lindner (FDP) after you passionately campaigned against his tax cut plans?
(laughs). I like very much that Mr. Lindner referred to the Federal Ministry of Finance as an enabling ministry. That coincides with my ideas of an enabling science. For a long time the council of experts had the role of admonisher and warner. But science must not always just say what should not be, but must also say pragmatically what is possible. Lindner apparently sees his role similarly. Prevent less, do more.
But can we seriously speak of a new departure if the policy of blocking the grand coalition is continued in tax policy and nothing happens?
The tax cut plans of the FDP with a volume of 90 billion euros annually were simply insane. Not even the 30 billion that the Union asked for was realistic. I would have liked to burden upper incomes a little more in order to relieve lower incomes in return. It’s a shame that it wasn’t politically feasible.
To do this, the federal government is working hard on the debt brake.
Well, screw? She uses the legal leeway that the debt brake gives her.
You do not consider the planned build-up of a climate reserve from unused corona debts to be vulnerable?
Apparently he is being attacked, and some constitutional lawyers have spoken out critically. To justify the build-up, there needs to be a causal connection between the corona crisis and the expenses that you want to make with the reserve. That is demanding, but doable. Investments were not made due to Corona, which inhibits future growth. There are also higher social expenditures for a longer period of time. The government can react again to the criticism.
In what way?
The traffic light could sharpen the justification for the climate reserve again. Determining all planned expenditure in detail would be too binding for future legislation. But the reserve must not be completely vague either. If you define three or four blocks of expenditure with upper limits and make it clear to what extent this serves to overcome the consequences of the corona, that would certainly make the climate reserve even more constitutional.
The reserve is not the only way the traffic lights will bypass the debt brake. Are you not afraid that such a policy, which interprets the rules more loosely, could find imitators in Europe?
I think all this talk that higher spending is always the same as breaking a dam or the way into bondage is completely wrong. It is about measures that make up 0.5 or one percent of the gross domestic product. You can’t pretend we’re breaking into an unstoppable avalanche of debt. We urgently need to objectify the debate. And for Europe, it is not the German debt brake that is decisive, but the EU fiscal rules.
Which are also to be relaxed at the instigation of some euro countries.
Not just at the instigation of some euro countries. The International Monetary Fund, the European rescue package, actually all of them are in favor of reform. With debt ratios of over 100 percent in the euro area, a swift return to the Maastricht limit of a maximum of 60 percent national debt is obsolete.
What do you suggest? Exempt green investments from the debt rules?
Yes, it is a possibility. More leeway for investments and economic stabilization in the EU debt rules. One could also create an EU climate fund analogous to the Corona reconstruction fund, the funds of which the EU Commission finances through debts. We have to get the climate investments right. With a climate fund, the financing issue for many countries, including Germany, could be permanently resolved. In any case, it will not work without reforms.
More: ECB Director Schnabel: Energy prices could require steps against inflation