The European Central Bank’s (ECB) decision to keep interest rates at record lows for even longer to boost sluggish inflation threatens monetary stability in the 19-member euro zone, a German conservative business group said on Monday.
The ECB said last month it would not hike borrowing costs until it sees inflation reach its 2% target by the mid-point of its forecast horizon, which currently stretches to 2023 and is extended by one year every December.
“The rising inflation rates are a troubling warning signal,” said Wolfgang Steiger, secretary-general of the CDU Wirtschaftsrat, a business group of 12,000 members that is close to Chancellor Angela Merkel’s Christian Democrats (CDU).
German consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose by 3.1% in July, a 13-year high, compared with 2.1% in June, leading services sector trade union Verdi to demand significant wage increases.
“It shows that unrestrained borrowing is no political plan in the long run,” added Steiger. “The average saver will in the end pay the price of the unprecedented expansive monetary and fiscal policies of the past years.”
German conservatives have opposed the ECB’s expansive monetary policy and demanded increases in interest rates.
Inflation in the euro zone has undershot the ECB’s target for most of the last decade, even with rates slashed to record lows and stimulus measures pumped in.
“It is a fatal signal that the central banks in the United States and Europe have achieved new margins by reformulating their interest rate strategies, holding on to zero and negative interest rates for longer and living with higher inflation rates,” Steiger added.
