The latest piece of data is emboldening economists and analysts to start predicting the extension of the European Central Bank’s €1.1 trillion quantitative easing programme, currently due to expire in September 2016.
Standard & Poor’s is one forecaster now publicly predicting an extension of ECB QE. The credit rating agency pointed to appreciation of the euro versus emerging markets currencies as likely to provide a further drag on prices across the continent.
Rival firm Moody’s Analytics has similar concerns, and picked out low energy prices as offering continued downward pressure on prices.
“Deflation pressures remain in the euro zone, weaker energy prices are contributing to the deflation environment, said Tomas Holinka, an economist at the company. “The price of Brent crude oil has dropped around 25% to $49 per barrel since the beginning of May, after it increased from the low of $45.20 on January 13.”
“Inflation will be low in the coming months as oil deflation eases only slowly and food price growth won’t be strong enough to compensate for low energy prices,” he continued. “The ECB held the main policy rates steady in early September, but the eurozone’s fragile outlook prompted the bank to step up quantitative easing. ECB President Mario Draghi announced that the conditions for bond purchases will be relaxed, allowing the bank to buy up to 33% of debt issued by a member country, up from 25% previously.”
Holinka said in his view the stimulus program could now be prolonged beyond September 2016, if necessary. This kind of ‘ultra-accommodative monetary policy’ should over time increase inflation pressure and support economic growth through higher lending, he added.
