European Central Bank chief Draghi notes risk of inflation remaining low

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SINTRA, Portugal – European Central Bank President Mario Draghi said Tuesday he is mindful of the danger of inflation remaining low in the 18-country eurozone and is committed to bringing it back to more tolerable levels.

The central bank is widely expected to offer some monetary stimulus at its next policy meeting on June 5 to support the European recovery and nudge inflation higher.

The inflation rate among countries using the shared euro currency has been below 1 per cent since October. The ECB’s inflation target is 2 per cent.

“We are aware of the risk of a too-prolonged low-inflation period,” Draghi told a business forum in Portugal, but he did not elaborate.

Low inflation makes debt reduction more difficult for people and governments. Deflation, an extended drop in prices that can stifle growth as consumers put off spending, has also become a concern.

“Price stability in the medium term is sacrosanct,” he said. “We are confident we’ll deliver … close to the 2 per cent objective.”

Draghi did not specify what steps the ECB might take. Analysts say it could cut its interest rates or start new programs to boost credit to companies.

Draghi indicated he had no immediate worries about deflation amid a slow eurozone economic recovery following its debt crisis. The European Commission, the EU’s executive, predicts the eurozone economy will grow 1.2 per cent this year.

Draghi said the ECB did not see signs of a sharp drop in prices or the spending behaviour that is typical of deflation, such as deferred household spending.

He said the ECB would give its blessing to a possible new regulatory framework to encourage lending to small and medium-sized companies, which account for some 80 per cent of eurozone jobs.

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