Mario Draghi’s stimulus pledge didn’t convince investors for long. Exactly one month since the European Central Bank president told his global peers he was ready to act to avert deflation in the euro area, bets on consumer prices have collapsed. Even after surprise interest-rate cuts and an asset-purchase program, inflation expectations fell to an almost four-year low and business surveys this week may show a faltering economy.
Investors are speculating that Draghi, who speaks in Brussels today, is running out of options to revive the stalled recovery as confidence wanes and governments drag their feet on structural reforms. His appearance at the European Parliament could offer a glimpse into his thinking on current stimulus, and whether he’ll step up to large-scale quantitative easing.
“The recent drop in inflation expectations is a direct credibility challenge to the ECB which Draghi will need to address,” said Lena Komileva, chief economist at G Plus Economics Ltd. in London. “The markets are starting to price in a euro-area economic malaise and the stimulus the ECB has provided may prove inadequate.”