ECB Sees Major EU Reform Deficiency Amid Worrisome Inflation

  • Central bank publishes account of April 20-21 policy meeting
  • Governing Council discussed if weak reforms weigh on prices

The European Central Bank sees “major deficiencies” in structural reforms in the region and is assessing whether procrastination by governments is weighing on prices.

Governing Council members “strongly reiterated the need for other policy areas to contribute much more decisively, both at the national and European levels,” according to an account of the April 20-21 meeting published on Thursday. Officials need to assess “the extent to which structural reforms affected developments in inflation, most notably with respect to their short and long-run effects, including possibly persistent disinflationary effects arising from too slow an implementation.”

The comments signal unhappiness that politicians are wasting the opportunity provided by the ECB’s extraordinary monetary stimulus, which has kept borrowing costs at record lows and spurred a cyclical economic recovery. After bolstering its measures at the previous meeting in March, some commentators see the central bank as near the limit of what it can do to revive inflation and growth.

While the ECB decided in April to keep interest rates unchanged and its bond-buying program at 80 billion euros ($90 billion) a month, officials said it was “worrisome” that inflation expectations haven’t picked up even as oil prices have rebounded.

Decoupling Concern

“It appeared that there had been some decoupling of inflation expectations from oil-price developments,” the account showed. “While, in principle a decoupling of inflation expectations from oil-price developments was welcome, in the current context this was a matter of concern.”

Brent crude has climbed for each of the past three months and rose 22 percent in April, yet euro-area consumer prices slid 0.2 percent on an annual basis that month. One of the ECB’s gauges of inflation expectations, 5-year 5-year forwards, remains subdued, reinforcing concern among policy makers about the central bank’s credibility.

“There was general agreement that there was a need to counter the perception that monetary policy could no long contribute to a return of inflation to the Governing Council’s aim of below, but close to, 2 percent,” the account showed. “It was felt that strongly reiterating the Governing Council’s commitment to bring inflation back to target without undue delay and sticking to its forward guidance was essential.”

Independence Pledge

Elements of the current stimulus plan have yet to be implemented, with a bank-lending program due to start in June. A corporate-bond-buying program will also commence that month, the account showed.

The Governing Council didn’t see a current need for new measures, though it discussed the risk associated with inflation staying too low for a long time. It also noted criticism of their policies from countries such as Germany.

“The focus should now be on the implementation of the latest set of decisions,” the account showed. Moreover, “it was viewed as important to reaffirm collectively the independence of the ECB in the pursuit of its mandate.”

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