ECB continues to look through rising inflation as big risks loom on the horizon
The European Central Bank (ECB) remains committed to “looking through” rises in headline inflation as Europe faces a balance of risks “tilted to the downside”, according to the minutes from its latest monetary policy meeting.
Members of the rate-setting governing council “widely agreed” to maintain its ultra-loose monetary policy despite mounting pressure to scale back quantitative easing in the face of rising inflation in some parts of the EU.
Inflation in Germany reached 1.9 per cent in January, but ECB president Mario Draghi has told critics the central bank will wait until there is a sustained rate of inflation across the Eurozone.
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Core inflation, which strips out volatile components such as fuel, remains at only 0.9 per cent across the bloc despite headline annual consumer price rises of 1.8 per cent reported in January.
The governing council will “look through the volatility in short-term data if judged transient and to have no implication for the medium-term outlook for price stability,” the minutes said.
The massive bond purchases known as quantitative easing have also faced criticism for keeping bond prices artificially high, limiting the yields (which move inversely to prices) available to big institutional investors such as pension funds, and therefore to pensioners.
The governing council acknowledged the criticisms but said the policy’s benefits “overall outweighed any negative effects on distribution”.
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The ECB expects growth to increase further from the 0.4 per cent GDP growth recorded in the final quarter of 2016, but noted the risks posed by the new administration of US President Donald Trump as well as the negotiations with the UK over Brexit.
Reduced demand from nations outside the EU also threatens growth, the minutes said, with increased “protectionist pressures”. Trump was elected on a platform of abandoning trade deals he sees as exploitative.
The minutes also record a “strong call” for governments to increase growth-boosting fiscal measures, as well as structural reforms.