No risk of deflation in eurozone, ECB president says

PRICE STABILITY::While current inflation at 0.8% is far from the eurozone target of 2%, Mario Draghi was optimistic that prices would gradually inch up

AFP, FRANKFURT, Germany

Sat, Mar 01, 2014 - Page 15

Inflation in the eurozone is currently very low, but there is no danger of deflation, European Central Bank (ECB) President Mario Draghi said on Thursday.

“At this point in time, we do not have evidence of consumers postponing expenditure plans, which is something one would observe in a deflationary environment,” Draghi told a symposium organized by the Bundesbank.

“To be sure, current inflation, which stood at 0.8 percent in January, can clearly not be considered close to 2.0 percent,” or the ECB’s definition of price stability, he said.

However, “with the average euro area inflation standing at 0.8 percent, we are clearly not in deflation, which is defined as a self-reinforcing fall in prices that is broad-based across items and across countries,” Draghi said.

“Moreover, inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2.0 percent,” he said.

“What we are experiencing now is a prolonged period of low inflation, which will be followed by a gradual upward movement towards inflation rates below, but close to, 2.0 percent later on,” he said.

Inflation remaining low for a prolonged period of time “is a risk in itself,” he said, adding that it was important to carefully assess the causes of low inflation, especially energy price developments.

“We will remain alert as to whether any indications on further downside risks to price stability emerge and we stand ready to act,” he said.

The ECB’s decisionmaking governing council is scheduled to hold its next policy meeting next week, with some central bank watchers predicting a possible cut in interest rates, already at all-time lows in the 18 countries that share the euro.

Draghi also defended the ECB’s pledge to buy up potentially unlimited volumes of sovereign bonds of heavily indebted eurozone countries under certain conditions.

The bond purchase program, known as Outright Monetary Transactions, has not yet been implemented by the ECB, but the German constitutional court recently expressed reservations about the program and referred it to the European Court of Justice for a final ruling.