FRANKFURT (Reuters) – The impact of euro exchange rate movements on inflation has declined, and its impact on euro zone consumer prices is close to insignificant, fresh research from the European Central Bank suggested on Monday.
Having undershot its inflation target for the past seven years, the ECB has kept monetary policy exceptionally loose, facing some accusations, including from U.S. President Donald Trump, that it was looking for an unfair trade advantage with a weak currency.
While a weaker euro does raise import prices, the impact on the bank’s key measure, the so-called harmonised index consumer prices (HICP) is close to insignificant, the ECB said.
“A 1% depreciation of the euro raises total import prices in the euro area and its member countries by, on average, about 0.30% within a year,” the ECB said in a Bulletin article.
“Over the same period, headline HICP rises by about 0.04%, although the estimates are not always significantly different from zero,” it added, noting that these figures are lower than many previous estimates.
The paper added that its estimates for the exchange rate pass-through to consumer prices are “not statistically significant” for the years it studied.
The ECB targets inflation at just below 2% but now faces the prospect of negative price growth following a crash in oil prices.
(Reporting by Balazs Koranyi; Editing by Hugh Lawson)
