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ECB sees no risk of euro-wide deflation

ECB sees no risk of euro-wide deflation

The European Central Bank's president said Monday that he sees no immediate risk of corrosive deflation in the 16 nations that use the euro.
Jean-Claude Trichet said rapid falls in inflation rates in recent months were "disinflationary" _ a term economists use to describe moderate price falls that don't threaten the economy _ and largely reflect tumbling oil and commodity prices and not deeper economic problems as growth slows.
"We have to remain permanently alert but at the moment of speaking we don't see that risk substantiated," he said.
He said the bank saw "very weak" demand in the euro area and the global economy this year and forecast that inflation would go "well below 2 percent" _ and below the ECB's guideline _ in 2009 and 2010.
Serious deflation means a vicious spiral of falling prices that cripples investment, magnifies debts and hurts growth, as happened in the Great Depression of the 1930s.
"We want to establish price stability in the medium and long term," he told the European Parliament's economy committee. "What's important for confidence today is to take the appropriate decisions."
One key decision will come Thursday when the ECB is expected to lower interest rates from 1.5 percent to a new low of 1 percent. It has been slower than other central banks to cut borrowing costs which can stoke growth by encouraging lending.
The ECB has instead focused on liquidity injections which offer loans to banks that couldn't borrow on tight credit markets.
Trichet said the bank would focus on keeping prices stable because this was crucial to the entire economy, and for government bonds where interest rates incorporate "both the real rates and the inflationary expectations."
Wide differences in borrowing costs among governments in the euro area led Italian officials to call for a joint euro-zone bond, something Germany has firmly resisted. Investors are charging Italy and Ireland, who have troubled government finances, far more for bonds than Germany, the region's largest economy.
Spain on Monday became the first euro-zone country to report a real decrease in prices as they fell 0.1 percent in March.
ECB officials have warned that the entire euro area may see prices shrink briefly this year but not for long enough to trigger a long-term decline in prices.
The euro-zone will post new inflation figures for March on Tuesday.


Updated : 2021-10-26 23:48 GMT+08:00