EU Economy
ECB study shows €1tn of QE would raise inflation by just 0.2 to 0.8 percentage points
By Michael Hennigan, Finfacts founder and editor
Apr 7, 2014 - 12:00 PM

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Reuters reports that over the weekend the Frankfurter Allgemeine Zeitung, the German newspaper, reported an ECB study which showed that €1tn in additional money supply via what's called quantitative easing (QE) or bond buying would raise Eurozone inflation by just 0.2 percentage points, while another model came up with 0.8 points.

Reuters says: "We have established the studies do exist and if they are believed it’s hard not to conclude that the bar for instigating QE remains high, whatever the rhetoric."

At the IMF, the debate about growth over austerity will be reignited after the Fund urged the ECB to do more and a reshuffled French government said new tax cuts might mean it takes longer to meet its EU budget deficit targets.

The amount of QE required would be about €80bn per month -- the Federal Reserve had been buying $85bn in bonds every month since September 2012 until it began tapering by $5bn per month from January this year.

The Financial Times says the fact that the assessment was leaked to FAZ, a bastion of German economic orthodoxy, has reignited suspicions by some ECB insiders of a campaign to foment German public opposition to QE as European parliamentary elections loom at the end of May.

Eurozone inflation fell to 0.5% in March, compared with the central bank's target of "below but close to" 2% and last Thursday, Mario Draghi, ECB president, said that the governing council was united in supporting more radical action, such as QE, should price pressures even become more subdued.

The ECB forecasts inflation at 1.1% in 2014, 0.2 percentage point lower than the previous prediction. It sees inflation at 1.3% in 2015

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