Draghi Says Slow Inflation Progress Means Accommodation Needed

  • ECB president speaks at Federal Reserve Jackson Hole symposium
  • Labor factors mean wages reacting slowly as output gap closes

The Takeaways From Draghi's Jackson Hole Speech

Mario Draghi reaffirmed the need for caution before the European Central Bank can remove euro-area monetary stimulus, saying inflation still has a way to go.

“We haven’t seen yet that self-sustained convergence of inflation toward our objective, our medium-term objective,” the ECB president said at the U.S. Federal Reserve’s Jackson Hole symposium in Wyoming on Friday. “On one hand, we are confident that as the output gap closes, inflation will continue to converge to its objective over the medium term. On the other, we have to be very patient” and “a significant degree of monetary accommodation is still warranted.”

The comments, largely a reiteration of remarks from his last press conference in July, signal the challenge facing the ECB’s Governing Council when it meets on Sept. 7 to discuss fresh economic projections and when it might be able to start winding down its bond-purchase program. While economic growth is broadening and proving robust, consumer-price growth last month was just 1.3 percent, well below the target of just under 2 percent.

“There are several factors that are slowing this process: mostly these factors have to do with the labor market, and the slowness with which nominal wages will react to the closing of the gap,” he said. These “are not factors that are going to disappear anytime soon,” he added, and therefore the the ECB has to “remain on guard.”

Draghi was responding to questions at the symposium after he gave a speech focusing on trade openness and financial regulation. He made no reference to ECB concerns over the strengthening euro, which spurred traders to send the single currency higher. It was up 1 percent at $1.1920 at 4:18 p.m. New York time, near the highest level since January 2015.

— With assistance by Piotr Skolimowski, and Carolynn Look

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