Bundesbank’s Weidmann Says Euro Region Deflation Risk Very Low

Bundesbank President Jens Weidmann said the euro area’s risk of a broad-based decline in consumer prices is low and any unconventional European Central Bank measures to avoid deflation would have to meet many conditions.

The ECB expects the euro region’s economy to improve and inflation rates to increase slowly, said Weidmann, who’s an ECB Governing Council member. The latest slowdown of inflation was mainly due to lower energy and unprocessed-food prices, he said.

“The risk is very low that the euro region will face a broad-based deflation,” Weidmann told reporters in Washington at a joint press conference with German Finance Minister Wolfgang Schaeuble. Monetary policy should only respond to such falling primary-goods prices “in the event of notable second-round effects.”

ECB policy makers are unanimous in their agreement to use unconventional measures if needed to boost prices, ECB President Mario Draghi said after the bank’s April 3 monetary-policy meeting, in which a discussion of quantitative easing -- large-scale asset purchases -- “was not neglected.”

“We had said at the last meeting that if inflation should be too low for too long, we would consider unconventional measures and these unconventional measures span a relatively wide spectrum,” Weidmann said. “It’s clear that due to the bank-based nature of our financial system, measures are certainly more suitable that set the focus there.”

Any unconventional measures must be effective, balance the intended results with risks and side effects, be covered by the ECB’s mandate and comply with European treaties, Weidmann said.

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