Draghi: Europe recovering, stimulus will lift inflation

AP News
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Posted: Mar 11, 2015 5:13 AM

FRANKFURT, Germany (AP) — European Central Bank head Mario Draghi says the economic recovery in the 19-country eurozone is gaining momentum and that recent stimulus measures will succeed in preventing a damaging period of falling prices that can hurt growth and jobs.

Draghi told a conference Wednesday the recovery should "gradually broaden and, hopefully, strengthen." In the fourth quarter of 2014, the eurozone grew 0.3 percent from the previous quarter, more than many economists predicted. Recent economic indicators have been encouraging with the eurozone seemingly benefiting from low oil prices and a falling euro. Retail sales were particularly strong at the start of the year.

"The slowdown in growth has reversed," Draghi said in his speech.

Draghi said the bank's recent stimulus measures "will stabilize inflation in line with our objective." In February, consumer prices were 0.3 percent lower than the year before, well off the bank's goal of inflation just under two percent.

Draghi said the bank's measures, including a 1.1-trillion euro ($1.2 trillion) program of bond purchases that started Monday, "have significantly decreased the likelihood" that low inflation would become a chronic downward price spiral that can weigh on an economy as consumers put off spending in the hope of bargains down the line and businesses fail to invest and innovate amid falling profits.

Low oil prices have been a key factor in Europe falling into negative inflation rates. Draghi said stimulus measures were preventing low or negative inflation from becoming ingrained in people's expectations for the future.

The ECB is using newly printed money to buy government and corporate bonds. That is intended to raise inflation by increasing the quantity of money in the economy, lower bond-market borrowing rates, and spur growth and employment. The bond purchases are set to run through September, 2016.

One effect of the program has been a fall in the euro's exchange rate, which should help exporters. The euro traded at $1.0655 on Wednesday. That is down from almost $1.40 in May, 2014.