ECB chief Mario Draghi said the risk of deflation in the eurozone is limited, but said the central bank stood ready to act decisively in case inflation expectations shift down.
"At present, risks of deflation ... are quite limited," Draghi said at the presentation for the Schumpeter economics award in Vienna, according to a text of his speech released by the European Central Bank.
Consumer price inflation has slowed dramatically in the past year, way below the ECB's target of just under 2.0 percent, raising fears of destructive deflation setting in.
Deflation can be highly damaging if consumers, expecting prices to fall further, hold off purchases. Companies forced to cut prices also cut wages and lay off workers, leaving consumers with less money to spend and the entire economy worse off.
With consumer demand already being hit by austerity reforms and the euro making imports cheap, inflation has slowed and in some eurozone countries consumer prices have posted slight drops.
But Draghi noted that inflation, excluding volatile energy and food prices, rose to 1.0 percent in February.
He also noted that medium and long-term inflation expectations remain anchored to the ECB's objective of just below 2.0 percent.
But Draghi acknowledged "the longer inflation remains low, the higher the probability of such risks emerging."
He said that the ECB has been preparing "additional non-standard monetary policy measures" and would take "decisive action" if needed.
Non-standard monetary policy measures indicates the central bank would use tools other than interest rates. The ECB's key refi rate is at a record low 0.25 percent.
"Any material risk of inflation expectations becoming unanchored will be countered with additional monetary policy measures," said Draghi.
ECB chief Mario Draghi said the risk of deflation in the eurozone is limited, but said the central bank stood ready to act decisively in case inflation expectations shift down.
“At present, risks of deflation … are quite limited,” Draghi said at the presentation for the Schumpeter economics award in Vienna, according to a text of his speech released by the European Central Bank.
Consumer price inflation has slowed dramatically in the past year, way below the ECB’s target of just under 2.0 percent, raising fears of destructive deflation setting in.
Deflation can be highly damaging if consumers, expecting prices to fall further, hold off purchases. Companies forced to cut prices also cut wages and lay off workers, leaving consumers with less money to spend and the entire economy worse off.
With consumer demand already being hit by austerity reforms and the euro making imports cheap, inflation has slowed and in some eurozone countries consumer prices have posted slight drops.
But Draghi noted that inflation, excluding volatile energy and food prices, rose to 1.0 percent in February.
He also noted that medium and long-term inflation expectations remain anchored to the ECB’s objective of just below 2.0 percent.
But Draghi acknowledged “the longer inflation remains low, the higher the probability of such risks emerging.”
He said that the ECB has been preparing “additional non-standard monetary policy measures” and would take “decisive action” if needed.
Non-standard monetary policy measures indicates the central bank would use tools other than interest rates. The ECB’s key refi rate is at a record low 0.25 percent.
“Any material risk of inflation expectations becoming unanchored will be countered with additional monetary policy measures,” said Draghi.
