Draghi says price risks rising in eurozone

The eurozone faces a growing risk of unstable prices, the head of the European Central Bank said in an interview Friday, at a time when concerns are mounting the bloc could slip into deflation.

Draghi says price risks rising in eurozone
ECB chief Mario Draghi warns of deflation threat to euro Photo: DPA

"The risk that we do not fulfil our mandate of price stability is higher than six months ago," ECB chief Mario Draghi told German financial newspaper Handelsblatt.

Eurozone inflation slipped to 0.3 percent in November, an alarmingly low level that the ECB warned could drop even further this year due to a slump in oil prices.

The slowdown has stoked fears the single-currency bloc could even fall into deflation, a dangerous downward spiral of falling prices that can strangle economic growth and drain government coffers.

Draghi said the risk of deflation was "limited" but said the European Central Bank's governing council was "unanimous" that the bank would intervene to stabilise prices if necessary.

"We are in technical preparations to adjust the size, speed and compositions of our measures in early 2015, should it become necessary to react to too long a period of low inflation," he said.

The ECB has already used several tools to push inflation in the 19 members of the eurozone back up to the 2.0 percent annual rate it regards as healthy, including asset purchases and making cheap loans available to banks.

It is also currently examining the possibility of large-scale purchases of sovereign debt, so-called "quantitative easing" or "QE," to help jump-start the European Union's moribund economy.

Draghi told Handelsblatt the bloc likely faces "a long period of weakness more than a crisis," but said he was "cautiously optimistic" that the bank's measures would be enough to return all eurozone members to growth in 2015.

He also called on EU governments to accelerate reforms to reduce bureaucracy and cut red tape to make their countries more competitive.

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Inflation rose in Germany in December: report

Inflation in Europe's largest economy Germany clambered higher in December, official data showed Friday, but remained short of the European Central Bank's target for the 19-nation eurozone.

Inflation rose in Germany in December: report
Prices in Germany are rising, but not as fast as they should be. Photo: Jens Büttner / zb / dpa
Price growth hit 1.5 percent year-on-year last month, statistics authority Destatis said, some 0.4 percentage points higher than in November.
And it reached the same level when measured using the Harmonised Index of Consumer Prices (HICP) yardstick preferred by the ECB.
But while German price growth was headed in the right direction, it was still well short of the ECB's just-below-two-percent goal. Over the full year 2019, inflation averaged just 1.4 percent.
“There is little sign of sustained growing price pressure that could prompt the ECB to rethink its ultra-expansive monetary policy,” said economist Uwe Burkert of LBBW bank.
Here's a graph put together by the German newswire DPA, showing how the inflation rate in Germany has fluctuated between 2008 and 2019. 
The ECB has set interest rates at historic lows, granted hundreds of billions of euros in cheap loans to banks, and bought more than 2.6 trillion euros ($2.9 trillion) of bonds in efforts to keep credit flowing to the economy, stoking growth and inflation.
But it has fallen short of its eurozone-wide price growth target for years, predicting last month it would inch up to just 1.6 percent by 2022.
Economists have pointed to both uncertainty over political events, like trade wars and Brexit, and long-term developments like ageing populations as possible reasons for sluggish growth and inflation.
Under new chief Christine Lagarde, the ECB plans to launch a wide-ranging “strategic review” this year, its first since 2003, that could adjust its tools or even reexamine the inflation target itself.
In the meantime, she has urged countries — like Germany — with sound government finances to lift spending in hopes of juicing the economy.