ECB's Draghi Sees Vigorous Pickup in Core Euro-Area Inflation
Comment of the Day

September 24 2018

Commentary by Eoin Treacy

ECB's Draghi Sees Vigorous Pickup in Core Euro-Area Inflation

This article by Paul Gordon for Bloomberg may be of interest to subscribers. Here is a section:

Mario Draghi said he sees a “relatively vigorous” pickup in underlying euro-area inflation, signaling
that the European Central Bank is well on track to raise interest rates late next year.

In testimony to the European Parliament, the ECB president said while headline consumer-price growth will only average around 1.7 percent a year through 2020, still below the goal of just under 2 percent, that stable outlook “conceals a slowing contribution from the non-core components” such as energy and food prices.

“Underlying inflation is expected to increase further over the coming months as the tightening labor market is pushing up wage growth,” he said in Brussels on Monday. “Domestic price pressures are strengthening and broadening.”

The euro jumped half a cent on the remark, reaching the highest level since June. It traded at $1.1800 at 3:16 p.m. Frankfurt time. Bunds extended losses and the Stoxx 600 index fell to a session low.

The ECB will end its bond-buying program in December and expects to keep interest rates at record lows at least through the summer of 2019. Policy makers have acknowledged market expectations for a hike around the final quarter of next year.

Eoin Treacy's view

The ECB has taken on a lot of additional responsibilities since the credit crisis but its one core mandate is to target an inflation rate close to 2%. With inflation rising and the ECB’s quantitative easing program ending the big question is whether the European economy will be able to grow quick enough to absorb inflationary pressures or whether stagflation is more likely?

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