Draghi Sees Inflation Nearing Goal in Not-Too-Distant Future

  • ECB president says policy measures helped to improve outlook
  • Officials ready for ‘all contingencies’ after Brexit vote

European Central Bank President Mario Draghi said the return of inflation in the euro area is not too far away, though policy makers will do more if needed to revive price growth.

“Our measures have been instrumental in putting the recovery on a more solid footing and thereby securing the conditions for inflation to rise towards levels closer to 2 percent over a not-too-distant horizon,” he said at a European Parliament hearing in Brussels on Tuesday. “Without our policy stimulus, both growth and inflation would be significantly lower.”

Draghi also said inflation dynamics in the euro area “remain rather subdued” and the Governing Council will act again if it has to respond to threats to the outlook. He singled out the U.K.’s referendum on its European Union membership, which has the potential to cause volatility in markets and undermine economic confidence. “The ECB is ready for all contingencies following the U.K.’s EU referendum,” Draghi told the lawmakers.

The ECB president has already deployed a stimulus arsenal that includes large-scale asset purchases, negative interest rates and offering to pay banks for central-bank money in exchange for expanding credit to the real economy. After undershooting his price-stability mandate for three years, Draghi is counting on a slow inflation pick up in the second half of the year as oil prices stabilize and the region continues its moderate recovery.

While the impact of stimulus policies is finally showing through in a more robust pick-up in non-construction investment,” the ECB president called on governments to do more. “Those countries where public finances allow, should undertake public investment in areas conducive to growth,” he said.

With total investment in the currency bloc still 10 percent below its pre-crisis level, he said it’s “very important” to increase it.

“At the same time, uncertainty remains high and downside risks are still significant due to the continued fragile state of the global economy and geopolitical developments,” Draghi said. “If we were to have an unwanted tightening of financing conditions that could alter the mid-term outlook, we would certainly make full use of all instruments we have.”

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