Bundesbank President Jens Weidmann said ECB should formulate the monetary policy objective in a way that is “understandable, forward-looking and realistic”. At the same time “we should counteract any impressions and claims that we can fine-tune inflation to the decimal place — we can’t do that!”
He explained, “a realistic and forward-looking definition of our goal allows monetary policy to wait if there are good reasons, in order not to react hectically to every change in incoming data. It allows the incorporation of the longer-term risks to price stability.”
Currently, ECB’s price stability means inflation is “below but close to 2%.” Weidmann is against the argument that raising the inflation target would give policymakers more room. He said “the gain in the capacity to act could be smaller than hoped. A strong increase in the goal could raise risks that inflation expectations become deanchored,” he said, adding that “higher inflation comes with costs for people.”
