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(CEP News) Frankfurt - Inflationary pressures have eased further since the last Governing Council meeting in November, said European Central Bank President Jean-Claude Trichet in his speech following the central bank's rate decision. As a result, he said inflation will likely be in line with the central bank's level of price stability over the policy horizon.
"The decline in inflation rates is due mainly to the fall in commodity prices and the significant slowdown in economic activity," Trichet said during his press conference after the ECB's Governing Council voted unanimously to cut its main refinancing rate by 75 basis points to 2.50% on Thursday. Trichet also noted during his introductory remarks that both global and euro zone demand levels are likely to remain at low levels for a protracted period of time, due largely to the ongoing and broadening effects of the financial crisis. "All in all, the level of uncertainty remains exceptionally high," Trichet said. "The Governing Council will continue to keep inflation expectations firmly anchored in line with its medium-term objective. In so doing, it supports sustainable growth and employment and contributes to financial stability. Accordingly, we will continue to monitor very closely all developments over the period ahead." Referring to the ECB's economic analysis, Trichet said that a number of downside risks to the economy have materialized, as reflected in GDP having contracted 0.2% in Q3. Trichet also said that survey data and indicators suggest that activity would weaken further in Q4. Trichet also revealed the ECB's staff projections for December, which point to growth averaging between 0.8% and 1.2% in 2008, falling to a range of -0.1% and 0.0% in next year before recovering to a growth rate of between 0.5% and 1.5% in 2010. "In the view of the Governing Council, the economic outlook remains surrounded by an exceptionally high degree of uncertainty," Trichet said. "Risks to economic growth lie on the downside. They relate mainly to the potential for a more significant impact on the real economy of the turmoil in financial markets, as well as concerns about protectionist pressures and possible disorderly developments owing to global imbalances." Turning to the central bank's monetary analysis, Trichet noted that estimates indicate that broad money is still growing at a sustained, but decreasing rate in the monetary union. "Monetary trends therefore support the view that inflationary pressures are diminishing further, with some risks remaining on the upside in the medium to longer term," Trichet said. According to the ECB's staff projections for inflation, CPI growth is expected to range between 3.2% and 3.4%, slow to a growth rate of 1.1% and 1.7% in 2009, and range between 1.5% and 2.1% in 2010. "HICP inflation projections for 2008 and 2009 have been revised downwards substantially in relation to the September 2008 ECB staff projections, reflecting mainly the large declines in commodity prices and the impact of weakening demand on price developments," Trichet said. Written by CEP News European Staff in Frankfurt,
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