ECB's Mario Draghi expected to boost QE after weak eurozone inflation data

Mr Draghi set the scene for more stimulus in October and reinforced his pledge in a speech two weeks ago

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More bad news on lingering low inflation in the eurozone intensified expectations that Mario Draghi, the European Central Bank president, will expand the single currency bloc’s €1.1trn (€776bn) stimulus programme today.

The ECB launched a €60bn (£42bn) a month money-printing programme in January in an attempt to stave off the threat of sustained deflation in the 19-member eurozone.

But the cost of living has lingered well below the ECB’s inflation benchmark of “close to 2 per cent” since early 2013 and disappointed again yesterday, remaining unchanged at 0.1 per cent in November against expectations of a slight rise. Inflation has been dragged down by tumbling oil and food prices, but more alarmingly for the ECB, its “core” measure, stripping out more volatile elements, also fell back to 0.9 per cent in November, down from 1.1 per cent the previous month.

The latest data reinforced expectations that Mr Draghi will have to crank up the speed of the printing presses, with most pundits predicting that the ECB will increase the size of the programme by at least €15bn a month. The ECB is also likely to cut its deposit rate for banks further into negative territory from the current -0.2 per cent, effectively charging banks more to hold reserves at the central bank. Experts said the bank could also extend its quantitative easing programme beyond 2016 and expand the range of assets it buys.

Mr Draghi set the scene for more stimulus in October and reinforced his pledge in a speech two weeks ago when he said officials “will do what we must to raise inflation as quickly as possible” – an echo of his “whatever it takes” intervention in June 2012 to staunch the worst throes of the eurozone crisis. Worryingly for Mr Draghi, longer-term inflation expectations – closely watched by the bank – remain at around 1.75 per cent, increasing the risks of entrenched deflation.

Howard Archer, an economist at IHS Global Insight UK, said: “There can be little doubt that the ECB will press ahead with further stimulus at its December meeting. Indeed, there are high expectations that the ECB will deliver a pretty aggressive package of measures despite serious reservations among some members of the governing council.”

Expectations of more easing have pushed the euro to eight-month lows against the dollar, with the US Federal Reserve expected to move in the opposite direction by raising interest rates in two weeks’ time. The ECB is also poised to cut its inflation forecasts today and say that it is unlikely to hit its target before 2018. The bearish news on the single currency pushed it below $1.06 and the euro is now closing in on parity against the dollar for the first time since 2002.