European Central Bank board member Peter Praet said he sees no alternative to pursuing the bank’s current stimulus program even though it hasn’t yet succeeded in bolstering the euro area’s low inflation.
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The European Union’s statistics office Eurostat said consumer prices in the 19 countries sharing the euro rose 0.2 percent year-on-year last month, against market expectations of a 0.3 percent rise in a Reuters poll of economists.
Inflation is now not expected to reach 1pc in Germany until the second part of 2016, said Carsten Brezski, economist at ING. “Simple. Inflation must move in a sustainable way towards 2 percent”, Praet, who is also the bank’s chief economist, said in Belgian weekly magazine Knack.
The provisional inflation data for December should strengthen the position of the doves in the ECB Governing Council.
Some analysts say that with inflation likely to be weaker than policy makers had expected, the European Central Bank will likely announce further stimulus measures later this year, widening its divergence from the U.S.Federal Reserve, which increased its key, short-term interest rates in December.
Inflation in December was again dragged down by energy prices, led by oil, but this drop slowed sharply to 5.9 percent annually instead of 7.3 percent the previous month, the data showed.
While falling prices might be a short-term good for consumers, deflation can endure dangerously if consumers delay purchases in the hope of lower prices later, which in turn prompts companies to hold off investment. “But if oil and commodities prices tumble, it is more hard to allow inflation to rise”.
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Looking ahead, IHS expected the region’s consumer price inflation “to head very gradually up over the coming months – due to base effects, the very weak euro and an ongoing euro zone cyclical upturn”.
