ECB Stimulus Should Help Lift Inflation Toward Target, Constâncio Says -- Update
August 29 2015 - 7:11PM
Dow Jones News
By Brian Blackstone in Frankfurt And Jon Hilsenrath in Jackson Hole, Wyo.
The European Central Bank's stimulus policies should help bring
eurozone inflation back toward the bank's target near 2% provided
the measures boost demand and bring economic output in Europe back
toward its appropriate level, ECB Vice President Vítor Constâncio
said Saturday.
"The link between inflation and real activity appears to have
strengthened in the euro area recently. Provided our policies are
able to significantly reduce the output gap, we can rely on a
material effect to help bring the inflation rate closer to target,"
Mr. Constâncio said in prepared remarks to the Federal Reserve Bank
of Kansas City's Jackson Hole conference.
Annual inflation in the eurozone was 0.2% in July, far below the
ECB's target. This trend is similar in other major economies, such
as the U.S., whose central banks also deem roughly 2% inflation as
the optimal level. Faced with ultralow inflation, the ECB in March
launched a EUR60 billion-a-month bond-buying program, which is
intended to run at least through September 2016.
Later, during the panel discussion, he strongly defended the
effectiveness of the bond-buying program, called quantitative
easing, saying it had helped reverse a drift toward deflation in
the region and buffer Europe against recent shocks.
"In December and beginning of this year we had negative headline
deflation and that was then corrected," he said in response to a
question. "More importantly we totally stopped the decline in
inflation expectations."
Mr. Constâncio's remarks appeared to play down the perceived
uncertainty surround the surprising resilience of inflation in the
aftermath of the global financial crisis and the sharp drop in
price pressures since 2012, especially in Europe, that raised
questions about the link between unemployment and inflation.
"There is an important common factor in inflation in the
advanced economies that helps explain national inflation dynamics,"
Mr. Constâncio said. "The current phase of low inflation, aside
from commodity price developments, is significantly influenced by
negative demand shocks both at the global and national level."
He also said the QE program, moreover had helped to buffer the
eurozone against shocks including fiscal turmoil in Greece,
political uncertainty in Ukraine, and the deflationary effects of a
drop in oil prices.
"Think about what would have happened if we had not adopted such
policies with all of the shocks that we had," he said.
Mr. Constâncio pushed back against the idea that the central
bank was trying to achieve its objective by pushing down the value
of the euro. The ECB is trying to push inflation up toward its 2%
objective. He noted that a weaker euro has resulted in little
pass-through to more inflation.
The main channels that made bond purchases work was through
their effects on stock prices and bond yields, he said.
Write to Brian Blackstone at brian.blackstone@wsj.com and Jon
Hilsenrath at jon.hilsenrath@wsj.com
(END) Dow Jones Newswires
August 29, 2015 18:54 ET (22:54 GMT)
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