Draghi Says Further Easing Possible

Mario Draghi presented his reasons for another round of monetary easing when he spoke to the European Parliament in Strasbourg, France Monday pointing to poor growth in wages and rising concerns about weak inflation which would justify more action by the European Central Bank.

The ECB president also set out his views on Britain’s attempt to renegotiate its EU membership terms, saying a fix “that would anchor the United Kingdom firmly within the EU while allowing the euro area to integrate further would boost confidence”.

Mr Draghi hinted late last month that his policymakers will inject more stimulus into the eurozone economy at their next meeting in March, saying the central bank’s governing council would “review and possibly reconsider” its policy stance.

A big reason for more action would be if policymakers think the wave of disinflation caused by the fall in oil prices risks feeding through to wages and longer-term expectations of inflation in the region.

Weak Wages, Declining Inflation

Mr Draghi told lawmakers that “While the most recent wave of disinflation is mainly due to the renewed sharp fall in oil prices, weaker than anticipated growth in wages together with declining inflation expectations call for careful analysis of the channels by which surprises to realized inflation may influence future price and wage-setting in our economy.”

The European Central Bank head warned that the “downside risks” facing Europe’s economy have increased due to the recent turmoil in emerging markets and pointed to risks in emerging markets that “have increased again amid heightened uncertainty” since Dec. 3, when the bank decided to cut a key interest rate and extend its bond-purchase stimulus program by six months.