The WSJ reports,"European Central Bank President Mario Draghi warned Monday that expectations for ultralow inflation may gain a damaging grip in the euro zone and spur consumers and businesses to delay purchases—the latest sign that the ECB is prepared to take fresh easing measures next week.
Mr. Draghi's comments, delivered at an ECB conference in Sintra, Portugal, outside the country's capital, also sent a strong signal that additional long-term ECB loans to commercial banks could be a part of any package of stimulus steps when the central bank meets on June 5.
Given the time it takes for central-bank policies to affect consumer prices, the ECB must be mindful of the risk that any action may occur too late, Mr. Draghi said, thus strengthening the case for an early response".
"What we need to be particularly watchful for at the moment is the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries," Mr. Draghi said in a speech to central bankers from Europe, North America and the Middle East as well as leading academic and private sector economists.
The conference, the first in what will be an annual ECB event, is modeled in many ways on the Kansas City Federal Reserve's annual Jackson Hole conference in Wyoming.
"There is a risk that disinflationary expectations take hold" and cause households and companies to delay purchases and investments "in a classic deflationary cycle," Mr. Draghi said. Deflation refers to a persistent drop in consumer prices that threatens spending, profits and debt financing.
His speech "keeps [the] door wide open to a package of measures being delivered" at the ECB's next meeting on June 5, IHS Global Insight economist Howard Archer wrote in a research note.
Financial markets have been on heightened alert for ECB rate cuts and other stimulus measures since May 8, when Mr. Draghi said officials would be "comfortable" with taking easing steps at their June 5 meeting. ECB policy makers first wanted to see updated inflation and growth forecasts through 2016 that will be available then, Mr. Draghi said at the time. ECB staff economists update their projections every three months.
