The comments from the ECB vice-president come in an interview with Germany’s Wirtschafts Woche due to be published on Monday.
Citing that oil prices had fallen by an extra 15% since the last ECB inflation forecast of 0.3% and that, while this should support growth and so drive up inflation in the longer term, Constancio admitted it created a tricky situation in the short-term.
We now expect a negative inflation rate in the coming months and that is something that every central bank has to look at very closely
But he said that several months of negative inflation would not translate into deflation:
You’d need negative inflation rates over a longer period for that. If it’s just a temporary phenomenon, I don’t see a danger.
Constancio adds that forecasts from the International Monetary Fund, the European Commission and OECD that the euro zone’s economic weakness would continue until 2018 meant there would be downward pressure on inflation until then.
He also repeated that there had been no decision on what extra measures the ECB would take to bring about monetary easing next year, adding that the bank would, in early 2015, assess the effectiveness of measures it had taken this year.He said the ECB needed to employ all monetary policy tools at its disposal, adding that the bank must act if inflation was too low to maintain its credibility and so would need to use channels it had not touched before.He said quantitative easing was “totally legal” and the ECB did not rule out what was legal.
Constancio also told WirtschaftsWoche that the ECB did not have an exchange rate target and did not measure the success of its monetary policy measures on the basis of their impact on the euro.
Reuters has more here
Seems to me like the ECB is more than getting ready to act in January, something with which the SNB would appear to agree given its rate cut during the week. The debate remains though as to how far and much is factored into the euro price, but comments like this should have the buyers pausing for thought.
Constancio – Negative inflation is on the way
