Mario Draghi was right in keeping inflation expectations low

Mario Draghi was right in keeping inflation expectations low

The European Central Bank’s president, Mario Draghi, kept expectations for the rate of inflation during this summer low, and data collected during the month of July has proved him right.

Growth of consumer price in the euro zone was recorded at 1.3 per cent, which is enough to argue that risk of deflation has disappeared but it is too little to meet Draghi’s goal of just under 2 per cent.

The data not only confirms the ECB president’s prediction that inflation would remain near the levels of June in the near future but also reinforces his assessment that there is not yet a self-sustained growing trend.

Nick Kounis, an economist with ABN Amro in Amsterdam, noted that the central bank needs clearer data to make a case for tapering.

Commenting on the situation, Kounis said, “They need to get a clear story for September or October to make the case of the exit and it’s not going to be easy because core inflation and wages will probably roughly be where they are now. They have to make the case for tapering and that will be based on growth…”

ECB officials have enough time to ponder economic data and policy options ahead of their planned meeting on 7th of September. The central bank is expected to announce its decision in October.

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