A key European Central Bank official has brushed off deflation fears in the euro zone, though he acknowledged that the strong euro was hurting prices.
Christian Noyer, an ECB governing council member said that the strong euro was “one of the factors that is pulling down inflation.”
“According to our calculations, if the euro had remained at the level of end 2012, about 10% lower, inflation would be today close to 1%,” said Mr. Noyer, according to Wall Street Journal.
Other key ECB officials such as President Mario Draghi have repeatedly warned that the strong euro was hurting exports and growth in the economic bloc. Draghi, in particular, has threatened to roll out monetary easing measures if the currency continued strengthening any further. The measures include negative interest rates and asset-buying program.
The strong euro may also prevent the inflation rate from reaching ECB’s target level of just under but near 2 percent. The prolonged inflation has stocked fears of weaker consumer spending and corporate profits as it makes it more difficult for players in the economy to settle their obligations.
However, Noyer pointed out that the strengthening euro was responsible for the increasing capital inflows into euro zone from emerging nations. Nondescript euro zone economies, which bore the biggest brunt of the economic recession, are gaining the most from this investor behaviour.
“It’s a strong sign that confidence in these countries is back, but its effect on the exchange rate isn’t negligible,” Mr. Noyer said.
While acknowledging that low inflation improves the consumers’ purchasing power, Noyer said that he expects inflation to gradually match ECB’s target in the next two years. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
To contact the reporter of this story; Yashu Gola at firstname.lastname@example.org