ECB raises inflation forecast amid recovery
The European Central Bank (ECB) raised on Wednesday its forecast for inflation this year to 0.3 percent from zero previously, another sign that the risk of crippling deflation — a long- term drop in prices — may be fading.
ECB President head Mario Draghi made the announcement at a news conference Wednesday after the bank’s governing council decided to hold its key interest rate at a record low of 0.05 percent.
The bank is pushing 1.1 trillion euros ( US$ 1.2 trillion) of monetary stimulus into the economy through 60 billion euros in monthly purchases of government and corporate bonds with newly printed money.
The aim of the stimulus is to raise inflation closer to the ECB’s goal of just under 2 percent. Very low inflation has raised fears of long-term stagnation in the currency union. Low inflation is a sign of weak demand and can make it harder for indebted governments and consumers to reduce their debt burdens.
Preliminary signs suggest the program is working, as prices rose 0.3 percent in the year to May after being flat in April. Still, Draghi sought to dispel any suggestion that a brightening economic picture could lead the bank to prematurely scale back the bond purchases before the full 1.1 trillion euro goal is accomplished in September 2016.
He stressed Wednesday that the bank was intent on “full implementation” of the program. He said the bank’s measures “will support further improvements” in the availability of financing for businesses and consumers. That stimulates economic activity.
The eurozone economy grew 0.4 percent in the first quarter, an improvement as the currency union struggles to work off a crisis over too much government and bank debt. But unemployment remains high at 11.1 percent. Economists say stronger growth is needed to bring the long-term unemployed back into the labor force.