Germany’s annual inflation is forecast to hit 2 per cent this month – just above the European Central Bank’s target rate – according to the Bundesbank.

Following a surge in German inflation to 1.7 per cent in December, on the back of climbing energy prices, the Bundesbank said price growth could hit a “good 2 per cent” in its latest monthly report – a level it has not hit since 2012. The ECB targets average inflation of just under 2 per cent.

German policymakers said the eurozone’s largest economy picked up a healthy pace at the end of last year, helping push annual German GDP growth to its best level in five years at 1.9 per cent.

Rising German inflation has raised new questions about the suitability of the ECB’s record stimulus measures for the German economy.

But ECB president Mario Draghi dismissed any suggestion that record low interest rates or quantitative easing could come to an end earlier than December this year, arguing that it was higher energy prices rather than threats of an over-heating economy that was pushing up inflation.

The Italian central banker urged his German critics to be “patient” in the wait for higher interest rates. “Real rates will go up” as the economic recovery regains momentum he said last week.

S&P Ratings has said ECB stimulus could continue until 2018, with the ECB taking a cautious approach to tapering amid still weak core inflation and subdued credit growth.

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