Otmar Issing called financial markets "merciless disciplinarians" that would punish economies at the slightest sign that inflation may grow in the future.
"Things are not going so well in our economies that we do not have to be afraid of the temptation to solve problems through inflation becoming irresistible again," Issing said.
Although German interest rates are at historic low levels, the remarks come at a time of stubbornly high unemployment in Germany and the rest of Europe, which some critics claim should be alleviated with still lower interest rates.The slow growth has helped price stability, however, with some economic commentators even talking about the "death of inflation."
Aside from 1986 when sharply lower oil prices pushed prices down, inflation is at its lowest level in more than 30 years. According to the OECD, inflation in many major nations should be less than two percent this year and next.
But Issing, a representative of an institution especially sensitive to inflation rates, said consumer price growth could accelerate if authorities relaxed their vigilance.
"The fact that at present there is virtual agreement on the importance of stable money is therefore no guarantee for ensuring that the pendulum will not swing the other way in the future," he said.
The economist said the key to maintaining stable prices was keeping the trust of financial markets through a predictable monetary policy and tangible progress in reducing budget deficits.
Issing said that central banks needed to make it easy for financial markets to predict their actions and that one method was to clearly state what economic policies are based on, in the case of the Bundesbank -- money supply growth.
Although several central banks, including the Federal Reserve Board, experimented with basing policies on money supply data in the early 1970s, nearly all eventually reduced their dependence on the indicator.
The Bundesbank, however, which still has not forgotten uncontrolled inflation of the early 1920s, has remained a firm defender of the importance of monetary aggregates.
