MNI BRIEF: German Inflation To Nudge 5% This Year - Weidmann

German inflation could run at close to 5% this year before falling back in 2022, with upside risks to the outlook predominating, Bundesbank president Jens Weidmann said in a speech Wednesday (in German), and the persistence of rising euro area inflation is set to be a "crucial" question at next week's ECB Governing Council meeting.

An expansionary monetary policy stance is still appropriate, Wiedmann said, but should not be locked in for too long if the upside risks to inflation are not to become too great. Emergency pandemic policies (PEPP) should not be continued beyond the emergency phase of Covid, Weidmann said, although it's termination should be neither immediate nor abrupt. PEPP's full flexibility should also be reserved for emergencies, he continued, "otherwise there is a particular risk that monetary policy will be caught in the wake of fiscal policy."

Germany's average annual growth in 2021 could be slightly lower than forecast in June, as it could be hampered by supply chain bottlenecks, Weidmann said. The overall economic outlook for Germany remains "blurred" due to its dependence on the course of the pandemic, he added.