European Central Bank (ECB) president Mario Draghi today gave a bullish message on the Eurozone economy, saying he is “more confident” that inflation will rise.
Speaking to the European Parliament in Brussels, Draghi said the central bank’s economists thought inflation will “eventually” rise towards the two per cent annual target.
The confident tone on the inflation outlook at a time of solid GDP growth paves the way for Draghi to announce the end of the quantitative easing (QE) programme of bond buying in October. The ECB is currently buying €60bn (£53bn) in bonds every month in an attempt to stimulate growth.
The ECB insists the programme has been a crucial driver for the strength in the economy. Draghi said today the adjustment to QE will be designed to continue supporting growth.
He said: “We will decide later this year on a re-calibration of our instruments that maintains the degree of monetary support that the euro area economy still needs to complete its transition to a new balanced growth trajectory characterised by sustained conditions of price stability.”
He added that patience and persistence in accommodative monetary policy was still necessary. He added that recent volatility in the euro “represents a source of uncertainty which requires monitoring” for its implications for the inflation outlook.
The euro has risen over the past year as the Eurozone economy has surprised observers with its strength, but the strong currency also makes imports cheaper, dragging on inflation.
Meanwhile, New York Federal Reserve president William Dudley, the influential vice-chair of the Federal Reserve’s rate-setting Federal Open Market Committee (FOMC), today dismissed “temporary” factors weighing down US inflation.
The US central bank is much further ahead in its tightening cycle than the ECB, with investors betting on a more than 70 per cent chance of a rate hike in December, according to CME Group calculations based on the federal fund futures market.
Dudley's own confidence in the inflation outlook comes despite recurrent weakness in price rises this year in the US.