ECB chief economist Peter Praet said in a speech yesterday that “progress towards a sustained adjustment in inflation has been substantial so far.” And, “the underlying strength of the euro area economy, together with well-anchored, longer-term inflation expectations, provides grounds to be confident that the sustained convergence of inflation will continue in the period ahead, even after a gradual winding-down of net asset purchases.”
He discussed the three criteria of progress assessment: convergence, confidence and resilience. As for convergence, ECB staff projections expect headline and core inflation to hit 1.7% and 1.9% respectively in 2020. This is a “pattern of convergence” to target. Uncertainty on inflation outlook “has been declining significantly” and risk of deflation “has vanished”. Inflation expectations have been “gradually improving” and domestic cost pressures are “strengthening”. These provide improving confidence. Also, the protected inflation convergence has become ” progressively less reliant on further extensions of net asset purchases”, which shows improved resilience.
Praet also reiterated that “patience, prudence and persistence” are fully reflected in our latest monetary policy decisions. ECB announced in June to taper the asset purchase to EUR 10B per month after September, and end it after December, based on incoming data. Also, interest rates will remain at present level at least through 2019 summer.
Full speech of Praet “Ensuring a sustained adjustment in inflation”.
