Spiking inflation will not prompt the European Central Bank to end its ultra-loose monetary policy sooner than planned, its president Mario Draghi said Monday. "Support from our monetary policy measures is still needed" to drive inflation towards the ECB's target of just below 2.0 percent, Draghi told the European Parliament's Economic and Monetary Affairs Committee at a quarterly appearance in Brussels.
After months in the doldrums, inflation in the eurozone picked up to 1.1 percent in December before climbing to 1.8 percent in January. That pick-up is largely the result of recent increases in energy prices, Draghi said. There is "subdued" underlying pressure on prices in the 19-nation eurozone, including persistently high unemployment and sluggish productivity growth, he said.
"We should not react to individual data points and short-lived increases in inflation," he said. Although inflation has jumped in the last two months, Draghi said the central bank would act with a view to the "medium-term horizon". An increase in inflation must meet four criteria for the ECB to alter its policy, he said: It must be durable, self-sustained, evident across the entire eurozone, and likely to last for several months.
ECB policymakers decided in December to extend the bank's mass bond-buying policy beyond a previous deadline of March 2017, to December, albeit at 60 billion euros ($64 billion) per month from April, down from the present 80 billion.
Along with cheap loans to banks and record-low interest rates, such "quantitative easing" is designed to pump cash into the financial system and, indirectly, to companies and households - who are then expected to spend the money and drive up inflation.
The latest jump in inflation would not prompt the ECB to revise its asset- purchasing plan, Draghi said, though pressure has increased in some member states, especially Germany.
The central bank's policy is "too loose for Germany," Finance Minister Wolfgang Schaeuble told Berlin's Tagesspiegel newspaper Sunday. Easy money drives down the value of the currency and means that "the exchange rate is too low for the competitiveness of the German economy", Schaeuble said. His comment was also a response to allegations from Peter Navarro, a trade advisor to US President Donald Trump, that Germany was exploiting an "undervalued" euro.
Draghi appeared to allude to the Trump administration when he told European Parliament lawmakers that "risks to the euro area outlook remain tilted to the downside and relate predominantly to global factors," and that the ECB stood ready to further ease its monetary policies if necessary.
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