In World Economy News 09/01/2017
It is premature to declare victory over economic weakness in the euro zone despite the latest figures showing a pick-up in inflation, European Central Bank director Yves Mersch said on Friday, batting back pressure from Germany.
The ECB has been facing fresh calls from some German economists this week to dial back its unprecedented monetary stimulus, which includes a 2.3 trillion euros ($2.44 trillion) bond-buying programme.
Mersch’s pushback was particularly significant as he is considered a ‘hawk’, meaning he has often sided with Germany in highligting the risks and limitations of the ECB’s ultra-easy monetary policy.
Euro zone price growth rose by more than 1 percent for the first time in three and a half years in December, although this was mainly due to a stabilisation in oil prices.
“Statistics from just one month is not going to change our position,” Mersch, a member of the ECB’s Executive Board, told a conference in Paris.
“In terms of inflation, it’s above all due to energy prices.”
Mersch added that wages were not growing fast enough in the bloc to fuel inflationary pressure and noted that core prices, which strip out energy and food, had barely risen last month.
Inflation – below the bank’s 2-percent target for more than 3 years – is now on the way up, in what could provide relief for the ECB but also an argument for hawks on its Governing Council to reduce stimulus.
Some German economists called on the ECB on Thursday to raise interest rates after December’s inflation rebound, which stirred a fear of inflation among Germans that goes back to the 1920s.
Price growth in the euro zone’s largest economy was among the highest among the 19 euro zone countries at 1.7 percent last month. The ECB targets inflation of almost 2 percent.
Source: Reuters (Reporting by Leigh Thomas; Writing by Michel Rose and Francesco Canepa; Editing by Sudip Kar-Gupta)
