Mario Draghi warns of European low inflation | City & Business | Finance

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Mario Draghi told the European Parliament’s Economic Affairs Committee that “EU economic recovery is solid, but inflation index is not good.”

He struck an optimistic tone about the euro zone economy but warned inflation has yet to show more convincing signs of a sustained upward adjustment.

Warning slack in the eurozone economy might be bigger than estimated, he said: ”Given the uncertainty surrounding the measurement of economic slack, the true amount may be larger than estimated, which could slow down the emergence of price pressures.

“This is particularly visible in the labour market.”

“Nonetheless, these factors should wane as the economic expansion continues and unemployment further declines.

“Looking ahead, we anticipate that headline inflation will resume its gradual upward adjustment, supported by our monetary policy measures.

Mr Draghi explained inflation levels have been well below one percent for three years, with dips into negative territory. The euro area headline inflation has fluctuated between 1.3 percent and 1.5 percent since May last year.

The ECB chief said: “Annual inflation stood at 1.3 percent in January. The changes in headline inflation have been driven by movements in the more volatile components, namely energy prices and, to a lesser extent, food prices.

“Measures of underlying inflation – which we monitor for their information content concerning inflation dynamics – have remained subdued. Inflation excluding energy and food was 1 percent in January, and has ranged between 0.9 percent and 1. 2percent since April 2017.”

Mr Draghi’s comments suggested the ECB is confident inflation could be on an upward trend.

He said: “A comprehensive analysis by the Eurosystem has concluded that adverse cyclical factors have played a crucial role in explaining low underlying inflation.

“These notably consisted of dampened economic activity and high unemployment in the aftermath of the sovereign debt crisis, and subsequently subdued foreign demand and low oil prices.”

Other concerns were persistent in Mr Draghi’s speech such as the volatility in financial markets, particularly in the exchange rate.

He believes the exchange rate requires closer monitoring with regard to its possible implications for the medium-term outlook for price stability.

Mr Draghi said: “The evolution of inflation remains crucially conditional on an ample degree of monetary stimulus provided by the full set of our monetary policy measures: our net asset purchases, the sizeable stock of acquired assets and the forthcoming reinvestments, and our forward guidance on policy interest rates.”

(Additional reporting by Monika Pallenberg.)

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