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Eurozone Inflation May Turn Negative

Eurozone Inflation May Turn NegativeEurozone Inflation May Turn Negative

Inflation in the eurozone may enter negative territory in the coming months but the European Central Bank will stick to its “steady hand” policy, ECB Governing Council member Ewald Nowotny said.

“It is very possible that we in the eurozone will, in the next month or months, get into negative territory once or twice,” Nowotny told an economic conference, adding that this would be driven by low oil and energy prices. “The central bank has a mid-term orientation, which means that we don’t react to every small change,” Reuters reported.

The ECB cut its growth and inflation forecasts on Thursday, warning of possible further trouble from China and paving the way for an expansion of its already massive €1 trillion-plus ($1.1 trillion plus) asset-buying program.

“Of course, there is a number of theoretical possibilities to set additional impulses, be it in terms of time frame or volume,” he said of the ECB’s quantitative easing program, adding that theoretically different assets could be bought.

“It’s clear that... there are limits to the effectiveness of monetary policy.” Nowotny said more flexible fiscal policies also had to play a role, adding it was important not to force countries such as Spain to cut their deficit too harshly in order not to endanger their restructuring processes.

ECB president Mario Draghi pledged to beef up or prolong the bank’s bond-buying program if the picture darkened further, although he said no one on the bank’s governing council had argued for it now.

The ECB, which left interest rates unchanged in a widely predicted decision, said the chances of missing its medium-term inflation target had increased due to lower oil prices, weaker growth in China and other emerging markets and an appreciating euro.

Financialtribune.com