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ECB Member Sees Persistent Low Inflation

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ECB Member Sees Persistent Low Inflation

The president of Germany’s Bundesbank, Jens Weidmann, has been talking about the Euro this morning. Dr Weidmann, who is also a member of the Governing Council of the European Central Bank (ECB) has cited capital inflows as the reason behind the Euro’s current strength. At a speech in Frankfurt earlier, Weidmann also noted that the ECB would be closely monitoring the value of the Euro and it’s consequent effects on inflation, however he commented that setting a target rate for the currency would conflict with the Banks efforts to control price stability.

The most concerning statement this morning from the Bundesbank chief was the warning that low inflation was likely to remain persistent for some time to come. This statement is however open to interpretation, the current low inflation levels below 1.0% are obviously troubling, it is most likely that Weidmann was referring to inflation remaining below the ECB’s target of 2.0%, this would leave scope for a short term pick up in price growth.

The real question is will inflation manage to break out of it’s current low rut and where will the stimulus for this come from. The onus is on the ECB Governing Council to act and for some time markets have been speculating as to not just the form of this action but also to the timing. Wait and see has been a deliberate policy of the monetary authorities since the beginning of this year, several minor improvements have provided scope for the maintenance of this policy. Governing Council members, particularly president Mario Draghi, have managed to sustain the Eurozone economy with some well timed and well worded statements along the way, but good will is starting to wear thin. It is not difficult to appreciate the task the ECB has in attempting to maintain so many disparate economies, but it is becoming more difficult to believe that the Bank can further withhold action beyond June’s policy meeting.

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