Brussels, 28/05/2014 (Agence Europe) - On Tuesday 27 May, the head of the European Central Bank, Mario Draghi, rejected the idea mooted by a number of economists, including Nobel Prize Winner for Economics Paul Krugman, that the ECB's inflation target should be higher.
At a forum organised by the ECB in Sintra, Portugal, Draghi said he did not even want to think about what a rise in the inflation target would mean for Germany.
The German central bank is hostile to expansionist monetary policy of any kind that would generate a rise in inflation, remembering the disastrous impact of hyperinflation in the 1920s that helped bring the Nazis to power.
The European treaties stipulate that the ECB's role is to keep annual price rises at approaching 2% in the eurozone over the medium term but inflation has been hovering between 0.5% and 0.9% since October 2013. This low inflation in the eurozone is largely due to falling fuel prices and the adjustments being carried out in struggling euro nations, combined with a high euro exchange rate that acts as a brake on the economy. Inflation is expected to remain low throughout 2014 before rising slowly in 2015 but remaining low until it reaches just below 2% at the end of 2016.
The ECB's planned introduction of new measures in early June to tackle low inflation will depend on the bank believing that inflation prospects are likely to deteriorate. The measures is complicated the fact that the eurozone nations are in highly divergent situations when it comes to their economies, explained Draghi. In April 2014, inflation stood at 1.6% in Austria, 1.3% in Finland and 1.1% in Germany, but prices slumped in Greece (-1.6%), Cyprus (-0.4%), Slovakia (-0.2%) and Portugal (-0.1%). (MB)