By Francesco Canepa
FRANKFURT (Reuters) - German inflation could exceed 1 percent for the first time in over 2-1/2 years at the end of 2016, the country's central bank said on Monday, potentially giving it extra ammunition to push for a reduction in European Central Bank money printing.
A strong recovery in German inflation would likely give Bundesbank's President and ECB rate setter Jens Weidmann more scope to argue for a reduction in the ECB's bond-buying program, a 1.7 trillion euros stimulus scheme that he has often criticized.
"According to current market expectations for the development of crude oil prices, the inflation rate at the end of 2016 could rise back to slightly above 1 percent," the Bundesbank said in its monthly report.
Oil prices have rebounded to $50 per barrel, from around $45, since the Organization of the Petroleum Exporting Countries agreed on Sept. 28 to reduce production.
Germany's harmonized consumer price index rose by 0.5 percent year on year in September, the fastest pace in more than a year, but it hasn't been above 1 percent since April 2014. Euro zone inflation was 0.4 percent last month.
The ECB, which wants to bring euro zone inflation to just under 2 percent, is looking at options to keep its 80-billion-euros-a-month bond program running at least until March amid a scarcity of eligible bonds to buy. A decision is expected in December.
Hawkish rate setters such as Weidmann are likely to favor a reduction in the pace of purchases.
But in the past they were often outnumbered on the ECB's Governing Council, which includes the euro zone's 19 national governors and the ECB's six Executive Board members.