Signs of firm return to inflation ‘have weakened’: Draghi

Signs of firm return to inflation ‘have weakened’: Draghi

FRANKFURT

AP photo

Signs of a return to healthy inflation levels are fading, ECB chief Mario Draghi warned Nov. 12, announcing the bank would re-examine the scale of its anti-deflation defences in December.

In a new sign that the European Central Bank could ramp up its controversial asset purchase programme 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 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, in order to kickstart inflation, which eased to minus 0.1 percent in September before bouncing to 0 percent in October.

But Draghi told the European Parliament on Thursday that “signs of a sustained turnaround in core inflation have somewhat weakened”, given persistently low oil prices, a stronger euro earlier this year and anaemic global growth.

“From today’s perspective, this suggests that a sustained normalisation of inflation could take longer than we anticipated in March when we first appraised the overall impact of our measures,” he said.

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.

Draghi said the QE programme could well run beyond next September if inflation does not return to the path leading to a target rate of 2.0 percent.

“Other instruments could also be activated to strengthen the impact of the purchase programme if necessary,” he added.