ECB head: Higher inflation needed to end stimulus

FRANKFURT, Germany — European Central Bank head Mario Draghi says the expanding eurozone economy still faces "risks and uncertainties" — including a looming trade dispute with the United States — and has cautioned that inflation needs to rise further before monetary stimulus is ended.

Draghi said Wednesday that higher inflation, not growth, is the "very clear condition" for the central bank to end its bond-buying stimulus program, and that risks to the outlook remain. Inflation of 1.2 percent annually is short of the bank's goal of just under 2 percent considered best for the economy.

Inflation could stay low if slack in the economy and the labor market takes longer to shrink than usual in economic recoveries. Meanwhile a protracted trade conflict could hurt growth and inflation as well. U.S. President Donald Trump has announced new import taxes of 25 percent on steel and 10 percent on aluminum.

Draghi said that tariffs' "first round effects are likely to be small." But he warned that, after that, the "second round effects could have much more serious consequences" if the European Union retaliates and the dispute spreads trade restrictions to other categories of goods. That escalation could in turn hit business confidence and investment.

The European Central Bank, the top monetary authority for the 19 countries that use the euro as currency, has said its 30 billion euros ($37 billion) in monthly purchases will continue at least through September, but has given no fixed end date. Annual growth has strengthened to 2.7 percent in the fourth quarter.

Speaking at a conference at Frankfurt's Goethe University, Draghi echoed earlier cautious comments by saying that monetary policy needs to be "patient, persistent and prudent." He said that the central bank would stick to its guidance on the sequencing of the next steps, meaning that the first interest rate increases will only start well after the end of the bond purchases. That would put them off until at least 2019. Currently the bank's benchmark short-term rate is at a record low zero.

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