ECB warned: Draghi must act ‘quick’ as German inflation disappoints

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The central bank is facing calls to get a grip on inflation after preliminary figures showed eurozone rates remained unchanged in June, holding at the 1.2 percent recorded in May and in line with analysts expectations. Figures released yesterday from Germany, the largest economy in the eurozone, showed headline inflation came in at 1.3 percent year-on-year in June, unchanged from May and well below the ECB target of 2.0 percent. The national inflation measure increased to 1.6 percent year-on-year, from 1.4 percent in April. While this is closer to the ECB target, analysts suggest the movement was not enough to prompt a reversal of the central bank’s decision not to raise interest rates in the coming year.

The disappointing inflation release has reinforced calls for the ECB to take action to bolster to overall euro area economy.

Alessandro Capuano, Head of Brokerage and Business Development at FinecoBank, said: “European inflation has for second month in a row remained at a 1.2 percent low.

“Following yesterday’s higher preliminary inflation figures from Germany, many where hopeful EU inflation would pick up and narrow the gap with the ECB’s target, however, it seems like not even a key driver like Germany can have motivate eurozone economies.

“The prolonged 1.2 percent low is clearly a warning sign towards the ECB which suggests they could start reconsidering their monetary policies, in favour of monetary easing, as well as the possibility of raising rates.

“Geo-political volatility and uncertainty is making a dent in EU member’s economies and the ECB should be quick on its toes to make sure it can adapt to ensure their policies are helping drive EU economies forward.”

ING chief economist Carsten Brzeski said in a note: “As so often over the last years, if inflation is not even picking up in Germany, with a strong labour market and an economic expansion of 10 years, where else in the eurozone should it pick up?”

Earlier this month, the ECB hinted it was open to cutting rates or buying more bonds, as risk factors such as trade wars dragged down the eurozone economy.

President Mario Draghi said the lender was prepared to ease policy if the inflation outlook fails to improve.

Speaking at the ECB annual conference in Portugal last week, Mr Draghi said: “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.

“That aim is symmetric, which means that, if we are to deliver that value of inflation in the medium term, inflation has to be above that level at some time in the future.”

He added there was still “considerable headroom” for more asset purchases and “further cuts in policy interest rates and mitigating measures to contain any side effects remain part of our tools”.

Mr Draghi said: “We will use all the flexibility within our mandate to fulfil our mandate – and we will do so again to answer any challenges to price stability in the future.”

He added that the ECB would use the “coming weeks” to work out its options.

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