Euro gains as ECB's Draghi says factors weighing on inflation are transitory

The factors dampening inflation pressures are only temporary but in order for prices to return to target policy-makers need to be persistent, prudence is also called for when re-adjusting policy in reaction to the improving economy, European Central Bank chief Mario Draghi said.

In remarks prepared for the introductory speech to the ECB's central banking forum in Sintra, Portugal Draghi framed the current policy debate in the context of the need to nurture the recovery, a pre-requisite for investment, productivity and hence strong and sustainable growth can be achieved again.

Indeed, the forum was to concentrate, in particular, on understanding the puzzles that lay behind slower productivity growth and "persistently" lower investment.

Against that backdrop, Draghi judged that an accurate diagnosis of why inflation was failing to pick-up alongside faster economic growth was "crucial".

At the moment, the diagnosis by and large was that monetary policy was doing its job of building up reflationary pressures but a combination of external price shocks were acting as an offset.

Included among those were a greater degree of slack in the economy and a changing relationship between the degree of slack and prices.

Past low levels of inflation were also perpetuating those dynamics.

Keeping inflation expectations anchored was also key, Draghi said.

"These effects, however, are on the whole temporary and should not cause inflation to deviate from its trend over the medium term, so long as monetary policy continues to maintain the solid anchoring of inflation expectations."

As of 0942 BST euro-dollar was up by 0.59% to 1.1247.