Having risen from 0.6% to 1.1% between November and December 2016, the inflation rate has admittedly almost doubled in the Eurozone, but underlying inflation remains weak. This situation has prompted the European Central Bank (ECB) to act cautiously, maintaining its interest rate unchanged and continuing with its policy of a massive buyback of securities, mainly public ones (quantitative easing or QE).
This annual increase in inflation principally reflects a strong annual increase in energy prices, but there are "no signs yet of a convincing upward trend in underlying inflation", the President of the ECB, Mario Draghi, explained, in justification of the decision to maintain the monetary status quo.
Certain senior German political figures take the view that the burgeoning inflation (1.7% in Germany, see EUROPE 11706) means that it is now time to question this continued accommodative monetary policy of the ECB. On this point, Draghi said that the end of negative interest rates would come in line with the speed of economic recovery and its spread to the entire euro zone. In particular, he stressed that economic recovery is also in the German citizens' interests.
The interest rates will not, therefore, be increased any time soon. The former Governor of the Bank of Italy listed the relevant criteria required in order to consider changing monetary policy: the increase in prices must be ongoing in the medium term and self-standing – in other words, continue in the absence of an accommodative monetary policy – and cover the whole of the euro area.
'QE' is paying off
One month after the decision to extend quantitative easing, albeit at a lower level (see EUROPE 11685), the ECB feels that QE is paying off. As of 13 January, it had acquired nearly €1300 billion in public securities. On Thursday, the European institution decided on terms to allow it to buy public securities with a yield lower than the interest rate set for its deposit facility (-0.40%).
In any event, QE is here to stay until at least December 2017, the ECB reiterated. The bank stands ready, if necessary, to step up its securities buyback operation, in both its scale and its duration.
The ECB President said that at this stage, it was too early to comment on scepticism about the single currency expressed by the American President-elect, Donald Trump, who is to be inaugurated this Friday. "Let's see what real policies are after the statements", Draghi said. As for Trump's comments in favour of weakening the dollar, he pointed out that the countries of the G20 had agreed to refrain from any competitive devaluation measures.
His comments on the clarifications given by the British government over the United Kingdom's intentions for its withdrawal from the European Union were in a very similar vein (see EUROPE 11705). "Again, it is too early to say. The final outcome is very important, particularly as regards the shape of the outcome and the length of time it will take", was all that Draghi was prepared to say.
On Thursday, the Frankfurt-based monetary institute kept unchanged the interest rates for the principal refinancing operations (0.00%), the marginal facility (0.25%) and the deposit facility (-0.40%). (Original version in French by Mathieu Bion)