FRANKFURT (Reuters) – Inflation will persistently undershoot the European Central Bank’s target for years to come and a strong euro will further dampen price pressures, leaving no room for complacency, ECB chief economist Philip Lane said on Friday.
Writing in a blog post a day after the ECB left its policy unchanged and took an unexpectedly benign view on growth and inflation, Lane warned that the deflationary impact of a historic recession has only been partially offset.
Lane’s comments that more data in the coming months would help calibrate policy could also reinforce market expectations that the ECB will expand its 1.35 trillion euro ($1.6 trillion) Pandemic Emergency Purchase Programme later this year.
“Inflation remains far below the aim and there has been only partial progress in combating the negative impact of the pandemic on projected inflation dynamics,” Lane said in blog post.
“It should be abundantly clear that there is no room for complacency.
He said inflation could remain negative for the rest of the year but also noted that figures for August, which included an unexpectedly big drop in underlying inflation, were distorted.
Still, he pointed to the impact of the strong euro as another factor that will prove a drag on prices.
“The recent appreciation of the euro exchange rate dampens the inflation outlook,” Lane said. “Headline inflation is expected to remain persistently low over the medium-term, notwithstanding a gradual pick-up over the projection horizon.
ECB President Christine Lagarde argued on Thursday that the euro would be “monitored carefully”, a disappointing statement for many, who had expected a stronger comments to talk down the currency.
($1 = 0.8450 euros)
(Reporting by Balazs Koranyi; Editing by Alex Richardson and David Clarke)
