In World Economy News 01/02/2016
The European Central Bank should look through a “short-term” drop in consumer prices caused by lower oil costs, Deutsche Bundesbank President Jens Weidmann warned, a week after ECB President Mario Draghi indicated the bank was prepared to launch additional stimulus in March to boost ultralow inflation.
The comments, from an influential member of the ECB’s 25-person governing council, indicate that a further increase of the bank’s EUR1.5 trillion stimulus program may face opposition at the ECB’s next rate-setting meeting.
After stripping out volatile energy and food prices, so-called core inflation is rising and “far from the deflation danger zone,” Mr. Weidmann told an audience here.
At a news conference last week, Mr. Draghi stressed that the entire governing council had agreed to “review and possibly reconsider” the bank’s stimulus in March, in response to a sharp drop in oil prices and turbulence in emerging markets.
Mr. Weidmann conceded that downward pressures on consumer prices had increased, and that the ECB likely would need to “substantially” lower its inflation forecast for 2016.
But he warned against fixating on current movements in consumer prices.
“In estimating risks to prices, we shouldn’t stare at current consumer price inflation rates like a rabbit at a snake,” Mr. Weidmann said.
He said it was important not to “say growth is worse than it is,” and that he saw no evidence of a sharp economic downturn in China.
Weak wage growth in the eurozone could even be a positive development because it could help some struggling countries regain competitiveness, he added.
