ECB chief Mario Draghi has warned that signs of a return to healthy inflation levels are fading, announcing the central bank will re-examine the scale of its asset purchases to boost prices in the eurozone.
In a new sign that the European Central Bank (ECB) could ramp up its controversial asset purchase program to boost inflation, Draghi pledged to use “all the instruments available within our mandate” to put the eurozone back onto the path of positive price stability.
In remarks to the European Parliament’s economics committee on Thursday, Draghi said that “signs of a sustained turnaround in core inflation have somewhat weakened,” given persistently low oil prices, a stronger euro earlier this year and anemic global growth.
In March, the ECB launched a quantitative easing (QE) scheme to buy more than 1.1 trillion euros ($1.2 trillion) in sovereign bonds at a rate of 60 billion euros per month at least until September 2016. The policy is intended to fight deflationary pressure in the eurozone where prices fell 0.1 percent in September before edging up to zero percent in October.
“We have always said that our purchases would run beyond end-September 2016 in case we do not see a sustained adjustment in the path of inflation,” Draghi added, calling the bank’s quantitative easing scheme “powerful and flexible.”
While falling prices might appear to be good for consumers, they can be poisonous for the economy. Deflation can become entrenched if consumers delay purchases in the hope of lower prices later, which in turn prompts companies to hold off investment, creating a vicious circle of falling demand and fewer jobs.
At their last meeting in mid-October, the ECB board also hinted it could further cut the bank’s key interest rate – already at an all-time low of 0.05 percent – to jumpstart inflation.
Refugee conundrum
Responding to questions about the economic impact of the current refugee crisis in Europe, Draghi said that “if properly managed, the Union and the euro area will emerge stronger in due time.”
He also said public investments were required to deal with the crisis, but that it was “premature to say by how much governments’ deficits will have to expand in order to invest in this development.”
“We do not have a completed analysis on this problem. We are working on it,” he told the lawmakers.
Last week, the European Commission, the EU’s executive arm, said it expected some 3 million asylum seekers to arrive in the European Union by 2017, and predicted a boost for the bloc’s economic output in the longer term if migrants were integrated into the workforce.
The Commission is expected to release a first analysis of the cost of the crisis in affected EU countries next week.
uhe/cjc (dpa, Reuters, AFP)
