(Adds Papademos comment on staff projections.) By Emily Barrett Of DOW JONES NEWSWIRES SAN FRANCISCO -(Dow Jones)- Persistent inflation well below 2% won't be tolerated in the euro area, European Central Bank Vice President Lucas Papademos said Sunday.
"Inflation won't be allowed to fall significantly below 2% for a protracted period of time over the medium term," the central banker told reporters at the American Economic Association's annual meeting.
Papademos reiterated that the central bank will do what is necessary in order to assure inflation remains consistent with the bank's definition of price stability over the medium term - officially, a rate close to, but below 2%.
Though the ECB expects inflation to decline significantly by the middle of the year, helped by declining energy prices and an economic downturn, the rate is expected to pick up again. The central bank sees no likelihood of deflation in its staff projections.
And despite the gathering signals of economic downturn, and the likelihood of a contraction in the first half of this year, so far the ECB has not seen sufficient indicators to suggest that its staff projections for growth will need to be revised further than the radical cuts made Dec. 4.
"The latest data and information confirm our earlier assessments," he said, adding that they "don't suggest the outlook for medium-term economic growth in the euro area is likely to fall below the lower bound of the range" of projections.
According to the latest projections, inflation in 2009 will likely hit a range midpoint of around 1.4%. The euro-zone economy is likely to contract an estimated 0.5% in 2009. That contrasts sharply with the forecast of 1.2% growth made back in September.
Papademos gave little indication of whether this outlook would persuade the ECB to cut its key interest rate again at the Jan. 15 meeting, from the current 2.5%. But he did note that a cut "at very low levels must be judged with special care because of its longer-term implications for price stability."
-By Emily Barrett, Dow Jones Newswires; 201-938-2248; emily.barrett@dowjones.com
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Publié le 04 janvier 2009 Copyright © 2009 Dowjones