Inflation in the euro area should return to the European Central Bank’s (ECB) target by early 2019 at the latest, ECB President Mario Draghi said.
“Our inflation rate will pick up during the course of next year and then will continue moving in 2018 toward the objective, which is close, but below 2 percent,” Draghi said on Saturday at a news conference during the annual meeting of the IMF in Washington. “This is predicated on maintaining the extraordinary support of our monetary policy.”
While the Frankfurt-based ECB has not met its own definition of its mandate on inflation since early 2013, an unprecedented wave of stimulus measures during Draghi’s tenure, including the asset-purchase pace of 80 billion euros (US$90 billion) per month has helped keep the currency bloc away from outright deflation.
The ECB has also deployed negative rates and cheap long-term loans to banks to rein in inflation.
Draghi’s comments imply that fresh staff forecasts due in December — which build in the impact of current stimulus — would show a 2019 inflation rate in line with the goal.
The December round of staff forecasts might serve as the basis for a decision on whether the ECB intends to continue its quantitative easing program at the current rate beyond the end date in March next year, whether the program would be wound down gradually after that, or if it could be stopped completely.
Draghi said that the ECB is ready to act if the path of inflation disappoints.
“The Governing Council continues to monitor closely the possible presence of second round effects produced by the fact that inflation has been so low for such a long time and could get ingrained in wage negotiations,” Draghi said. “We have no firm evidence of anything like that at this point in time, but we continue monitoring the situation.”
In Washington, Draghi took the opportunity to remind eurozone governments that the ECB policies give time for economic reforms to be undertaken.
He presented a list of measures that countries with fiscal space — such as Germany — could do to boost productivity, including investment in education, technology and infrastructure.
While Draghi was moderately upbeat about the outlook for the euro area, he warned that the full impact of the UK’s decision to leave the EU might not have fully unfolded.
“Many speakers have noted that the short-term effects of the outcome of the UK referendum were less dramatic than people expected,” he said.
“To think that there wouldn’t be any consequence would be probably to hope for too much,” Draghi said, adding that the consequences would depend on the length of time needed to finalize British secession from the EU. “But certainly it’s another of these political uncertainties that clouds the outlook for growth.”
Additional reporting by AFP
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