Trichet strives for low inflation expectations

The European Central Bank exercises the utmost vigilance in monitoring inflation expectations to ensure they remain at low levels, ECB President Jean-Claude Trichet said on Friday. In a speech delivered at a commemorative event at the Bank of Greece, Trichet did not discuss the current economic situation or monetary policy prospects ahead of the ECB’s interest rate-setting meeting next week. Rather his speech reviewed the history of launching the euro, how policymakers managed a smooth transition to the new currency and how they are committed to maintaining its success. «Solidly anchoring inflation expectations at a low level at the birth of the euro was a success. But credibility is never gained once and for all,» Trichet said. Inflation in the 12 eurozone countries fell steadily ahead of euro adoption and was at 1.1 percent in 1999. Since then, the ECB has been trying to get annual price gains below 2 percent and may achieve that goal this year. Inflationary expectations, however, have remained low and Trichet pledged to keep them low since they can influence future economic behavior. «It has to be permanently preserved and enhanced. That is the reason why vigilance is always of the essence for central bankers, especially exerting it efficiently and monitoring inflation expectations, particularly on the long-end of the time horizon,» he said. Inflationary expectations in the eurozone through 2009 were just below 2 percent, which is what the ECB defines as price stability, according to the ECB’s first-quarter survey of professional forecasts. Expectations have consistently stayed below 2 percent in recent quarterly surveys. Given contained inflationary risks, disappointing growth figures and waning business confidence, analysts expect the central bank to wait until late in 2005 before raising rates, now at 2 percent. The ECB holds its monthly policy meeting on Thursday.

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