The meeting of the Governing Council of the ECB on 21 January, at the end of which President Mario Draghi announced that monetary policy will be reviewed and perhaps corrected in March, was dominated by fears linked to inflation that was still too low. This is what emerges from the report of the meeting released by the ECB.
Inflation dynamics in the euro area "continued to be weaker than expected" and "clearer signs have emerged that continued downward revisions to the inflation outlook are seeping into inflation expectations, increasing the chances that the eurozone economy remains in a phase of low inflation for an extended period of time”.
In particular, the discussion focused on the risks of possible secondary effects, ie on the possibility that excessively low inflationary pressures make themselves felt on a lasting basis on prices and wages, triggering a negative spiral. All this due to the drop in the price of crude oil, but not only.
However, "in the light of the prevailing uncertainty and volatility - the report continues -, the Governing Council of the ECB decided that it was premature to act or discuss defined options" already during the meeting of 21 January and concluded that "it was necessary to postpone a complete analysis to be conducted at the beginning of March when the new updated projections would have been available, including those for 2018” on growth and inflation.
The discussion at the next meeting, scheduled for March 10, "could find support in a more complete picture of the economic situation and medium-term price prospects, including a more in-depth analysis of potential secondary effects".
Furthermore, at the meeting held on 21 January “a broad consensus emerged on the fact that the risks of a worsening are increasing again since the beginning of the year” for the economic situation in the euro area. “Even if the recovery in the Eurozone is holding up well and financial conditions are confirmed to be favorable throughout the area, the external scenario – continues the text – is characterized by a high degree of uncertainty about the growth prospects of emerging markets, by volatility on financial and commodity markets and geopolitical risks".
In this context, inflation dynamics in the euro area "continued to be weaker than expected". Furthermore, “clearer signs emerged that continued downward revisions to the inflation outlook were seeping into inflation expectations, raising the chances that the eurozone economy would remain in a low inflation environment for an extended period of time. ”.
