Back
18 Jul 2013
Flash: ECB persistence is what matters – Goldman Sachs
FXstreet.com (New York) - Mr. Draghi recently emphasized that deflation embodies self-fulfilling expectations – such a process would imply a persistent downward trend in the price level, notes the Economics Research Team at Goldman Sachs.
Assessing the persistence of price developments in real time is challenging. Backward-looking statistical measures point to higher persistence in price dynamics in recent times, but from a starting point consistent with price stability this may be benign: it can serve to keep deflation at bay. Forward-looking measures associated with private inflation expectations are also quite reassuring.
However, “they reflect the credibility of the ECB, which ultimately depends on effective monetary policy. In the face of continued weakness in Euro area aggregate activity – and consistent with Mr. Draghi’s message at his July press conference – we expect the ECB to maintain its accommodative monetary policy stance some time and – absent further shocks – see this as sufficient to ward off deflation on his definition.” the team adds.
Assessing the persistence of price developments in real time is challenging. Backward-looking statistical measures point to higher persistence in price dynamics in recent times, but from a starting point consistent with price stability this may be benign: it can serve to keep deflation at bay. Forward-looking measures associated with private inflation expectations are also quite reassuring.
However, “they reflect the credibility of the ECB, which ultimately depends on effective monetary policy. In the face of continued weakness in Euro area aggregate activity – and consistent with Mr. Draghi’s message at his July press conference – we expect the ECB to maintain its accommodative monetary policy stance some time and – absent further shocks – see this as sufficient to ward off deflation on his definition.” the team adds.