Brussels: Mario Draghi said inflation expectations have deteriorated across the euro area and signalled policy makers are ready to add fresh monetary stimulus.
In his strongest indication yet that officials aren't finished with measures to stave off a Japan-style stagnation, the European Central Bank (ECB) president told his international counterparts in Jackson Hole, Wyoming, on Friday that investor bets on euro-area inflation have "exhibited significant declines at all horizons" in August.
"The Governing Council will acknowledge these developments and within its mandate will use all the available instruments needed to ensure price stability over the medium term," he said in ad-libbed remarks during a speech at the Federal Reserve Bank of Kansas City's annual economic symposium.
Draghi has previously said that any worsening of the medium-term inflation outlook would provide a reason for the ECB to carry out broad-based asset purchases, or quantitative easing. His comments come days before data that is predicted to show euro-area inflation slowed to 0.3 per cent this month, a fraction of the ECB's goal and the weakest since October 2009.
The 18-nation economy stalled in the second quarter and unemployment remains near a record high. Draghi's concern is that the malaise prompts investors, consumers and companies to pull back spending in anticipation of even weaker inflation, tipping Europe into a deflationary spiral that would be hard to reverse.
He cited the ECB's preferred gauge for inflation expectations, which fell below two per cent this month. The last time the 5-year, 5-year inflation swap rate crossed that level, which matches the central bank's price-stability threshold, was in October 2011, according to data compiled by Bloomberg.
The stalled economy and slowing price gains also come against the backdrop of escalating sanctions against Russia because of its support of separatists in Ukraine, raising the risk to regional trade. Citigroup economists said on Saturday.