By Tom Fairless
FRANKFURT--German central-bank president Jens Weidmann called for "extra care" in deploying easy-money policies such as large-scale bond purchases, stressing that the eurozone's ultralow inflation rate is temporary.
The comments indicate that Germany's Bundesbank will likely be cautious about agreeing to an extension of the ECB's bond-purchase program, which is due to end in about four months.
"With respect to inflation, what went down, will go up - albeit at a modest pace," Mr. Weidmann said at a bankers' conference here.
Central banks don't "need to respond automatically whenever inflation deviates" from target, he said.
ECB policy makers are preparing for a key meeting on Dec. 8, where they are expected to decide whether to extend their EUR80 billion ($85.5 billion) a month bond-purchase program. The program is due to end in March.
With eurozone inflation just 0.5%, far from the ECB's target of just below 2%, most economists expect the bond purchases to be extended by at least six months.
Mr. Weidmann didn't rule out such an extension, but he stressed that most of the reasons for the current low rate of inflation are "only temporary in nature."
The reduction of inflation caused by a sharp drop in oil prices, for instance, "is already beginning to be washed out," he said, arguing that inflation might rise to 1.5% by February next year.
He also reiterated his concerns about government bond purchases, which he said blur the line between monetary and fiscal policy. The Bundesbank worries that large-scale sovereign bond purchases weaken the incentives of governments to carry out necessary reforms, and couldtie the ECB's hands when it tries to raise interest rates.
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November 18, 2016 06:09 ET (11:09 GMT)
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