Sunday 19 January 2020

Eurozone inflation under target as stimulus debate looms

ECB President Mario Draghi. Photo: Getty
ECB President Mario Draghi. Photo: Getty

Alessandro Speciale

Inflation in the eurozone remained well below the European Central Bank's goal as policymakers prepare to discuss unwinding stimulus.

Consumer prices rose at an annual pace of 1.3pc in July, unchanged from the previous month, Eurostat reported yesterday. Core inflation, the measure that strips out volatile components such as food and energy, accelerated to 1.2pc, the highest in three months. While the report confirms ECB President Mario Draghi's prediction that inflation would remain near June levels in the coming months, it also reinforces his assessment that, despite the region's booming economy, there isn't yet a self-sustained trend.

Policymakers are gearing up for an autumn debate on future ECB policy. "They need to get a clear story for September or October to make the case of the exit and it's not going to be easy because core inflation and wages will probably roughly be where they are now," said Nick Kounis, an economist at ABN Amro in Amsterdam.

"They have to make the case for tapering and that will be based on growth giving them confidence that inflation is going to come back, and that's the story they will try to sell."

So far, Mr Draghi and his Governing Council discussion have steered away from a formal discussion about what will happen to the ECB's €2.3 trillion quantitative-easing programme after its scheduled end in December. While policymakers' guidance ties bond-buying to progress on the inflation front, the Italian has suggested that purchases could be pared without tightening the stance.

Officials will have ample time to ponder economic data and policy options ahead of their September 7 meeting, and probably even thereafter. (Bloomberg)


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