Outlook remained heavily dependent on the evolution of services inflation – ECB accounts

• Disinflationary process was well on track.
• Inflation was still expected to remain above target in the near term.
• Confidence in a timely and sutained convergence had increased.
• High levels of uncertainty, lingering upside risks to energy and food prices, a strong labour market and high negotiated wage increases called for caution.
• Potential future actions by the US Administration that might lead to a global economic slowdown.
• Oil and gas prices up to now did not suggest a major change to the baseline in the staff projections.
• It was relatively safe to make the assessment that monetary policy was still restrictive.
• Risks to the inflation outlook were seen as two-sided.
• Some evidence suggesting a shift in the balance of risks to the upside since December.
• Looking ahead there seemed reasons to believe that both services inflation and wage growth would slow down in line with the baseline scenario.
• It was remarked that an undershooting of inflation could not be ruled out.
• View was also expressed that the economic outlook in the December staff projections had likely been too optimistic and that there were signs of downside risks materialising.
• Still seen as plausible that, within a few quarters, there would be a consumption-driven recovery.
• Maintaining the deposit facility rate at the current level of 3.00% would excessively dampen demand.
• A higher neutral rate implied that rates would plausibly be getting close to the neutral rate territory. This meant that the point was approaching where monetary policy might no longer be characterised as restrictive.

This article was written by Giuseppe Dellamotta at www.forexlive.com.