(Bloomberg) — The recent appreciation of the euro dampens the inflation outlook and the European Central Bank is ready to act if needed, chief economist Philip Lane said.
Inflation will remain negative for the rest of the year and upward revisions in core price growth because of the economic rebound have been “significantly muted” by the stronger exchange rate, he wrote in a blog post on Friday.
“It should be abundantly clear that there is no room for complacency,” he wrote. “The Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves toward its aim in a sustained manner, in line with its commitment to symmetry.”
President Christine Lagarde spurred a rally in the euro on Thursday after she delivered relatively mild comments on the euro’s surge. The single currency has jumped more than 10% against the dollar since March and is near its strongest level in more than two years.
The exchange rate must be monitored for its impact on prices, she said after the ECB left its monetary policy unchanged and unveiled a slightly more optimistic outlook for euro-area economy.
The currency fluctuated on Lane’s remarks and was at $1.1834 at 8:17 a.m. Friday, up 0.2% on the day.
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