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ECB chief economist confident of sustained inflation recovery after QE ends

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ECB chief economist confident of sustained inflation recovery after QE ends

European Central Bank executive board member Peter Praet expressed confidence that eurozone inflation will continue to pick up toward the ECB's target of just below 2% even after the end of quantitative easing later this year.

Praet, the ECB's chief economist, said in a speech in Bucharest that the risk of deflation no longer exists and that uncertainty about the inflation outlook has significantly declined. He said inflation expectations have also improved and are increasingly consistent with the bank's inflation goal.

Domestic cost pressures are firming up amid high levels of capacity utilization, tightening labor markets and rising wages, Praet added.

"Progress towards a sustained adjustment in inflation has been substantial so far," Praet said in prepared remarks. "The underlying strength of the euro area economy, together with well-anchored, longer-term inflation expectations, provides grounds to be confident that the sustained convergence of inflation will continue in the period ahead, even after a gradual winding-down of net asset purchases."

Eurostat reported June 29 that headline inflation in the euro area accelerated to 2.0% in June from 1.9% in May, while core inflation slipped to 1.0% from 1.1%.

The eurozone's monetary authority, the Eurosystem, projects headline inflation to stand at 1.7% each year through 2020, while core inflation is expected to reach 1.9%.

Praet said significant monetary policy stimulus is still needed to help maintain inflation under, but close to, the 2% target in the medium term.

This stimulus will be provided by the ECB's stock of acquired assets and additional net asset purchases until the end of 2018, and by its enhanced forward guidance on key interest rates, Praet said.

The ECB decided on June 14 to halve its monthly asset purchases to €15 billion after September, and to end them after December.

The central bank also signaled that interest rates are expected to remain at current levels at least through the summer of 2019 and for as long as necessary to meet inflation targets.