Oil price slump muddies ECB’s core mission

By Benoit Toussaint, AFP

FRANKFURT–The plunge in oil prices is making it tougher than ever for the European Central Bank to achieve its core mission of keeping prices stable at a time it faces looming deflation, analysts say. In the short-term, the collapse of crude prices to five-year lows will curb inflation. But in the longer term, the slump could boost growth, which in turn would reverse the stubbornly low inflation worrying the eurozone, economists say. ECB president Mario Draghi voiced concern this month over the fall in oil prices as the Frankfurt-based central bank battles to boost low inflation of 0.3 percent dogging the single currency area. Low inflation or even falling prices may sound good for the consumer but are not welcome from a central bank’s point of view.

They can trigger a vicious circle where businesses and households delay purchases, throttling demand and causing companies to lay off workers. The ECB’s target for inflation is around 2.0 percent. Draghi said the bank had stepped up preparations to undertake additional stimulus measures, on top of a raft of previous steps to help revive growth in the fragile eurozone economy. But the oil price slump may actually provide the ECB with a helping hand down the line, by giving consumers and companies a bump at the petrol pump or in their oil heating bills.