Inflation rates in the eurozone could turn negative in the coming months, based on current futures prices for energy, warned Mario Draghi, president of the European Central Bank.
Inflation rates “could turn negative again in the coming months before picking up in the second half of 2016. Thereafter, supported by our monetary policy measures and the expected economic recovery, inflation rates should recover further in 2017 and 2018,” Mr. Draghi said at a news conference Thursday regarding the central bank’s latest economic and monetary analysis.
Based on the governing council of the ECB’s regular economic and monetary analyses, the key ECB interest rates remain unchanged, Mr. Draghi said at the news conference. “We continue to expect them to remain at present or lower levels for an extended period of time, and well past the horizon of our net asset purchases,” he said.
Mr. Draghi was questioned on the effect of low interest rates on Germany’s pension funds in particular. He was asked what he would say to German citizens who are worried about their pension savings.
“It is pretty evident that pension funds and insurance companies and other actors are … significantly affected by the low level of interest rates. By the way, I would urge all the actors in this sector to resist the temptation to blame low interest rates as the cause of everything that went wrong and has been going wrong for years with this sector,” Mr. Draghi. “But having said that, I think they are being affected by low rates — although one should keep in mind that they also realize substantial capital gains on the bonds we are buying, because some of them are among the main sellers, the main counterparties, in our asset purchase program.”
Mr. Draghi also highlighted that low interest rates are not specific to the eurozone. “The U.S. had zero interest rates for much longer than we have been having low interest rates. And still clearly the pension fund industry and the insurance industry have been affected, but in a different way — and certainly not in the same way as the eurozone and especially the German pension fund industry.”
Mr. Draghi said these different effects have happened for a variety of reasons, such as differences in regulation and business models. “But basically, it is not because of the monetary policy.”
Finally, regarding discussions of the ECB expanding policy measures to include so-called helicopter money, an irreversible form of money creation by a central bank, Mr. Draghi said: “We have never discussed it.”