Draghi fights back against German worries

The German pathological fear of inflation is headed for a clash with dovish ECB policies.

The cover of Germany's Bild today featured the headline 'Inflation: Things are suddenly more expensive' and highlighted that German inflation is at a three year high after rising 0.7% month-over-month in December.

In year-over-year terms it only rose 1.7% in December but it's the shape of this graph that focuses the collective memory of Germany on the Weimar Republic.

Draghi was having none of it and he repeatedly emphasized that the inflation rise was a one-off related to jumps in energy prices.

"There are no signs yet of a convincing upward trend in underlying inflation," he said. "Headline inflation is likely to pick up further in the near term, largely reflecting movements in the annual rate of change of energy prices. However, measures of underlying inflation are expected to rise more gradually over the medium term."

He was unequivocal that inflation worries wouldn't impact the Governing Council.

"The Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook of price stability," he said.