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ECB: Slowing demand feeding deflationary pressure

[Washington] Slowing demand in the eurozone is feeding the downward pressure on prices that has policy makers worried, European Central Bank President Mario Draghi said on Friday.

In a statement to the International Monetary Fund, Mr Draghi said that since 2011, the fall in inflation in the euro area had mainly stemmed from international factors like easing commodity and food prices.

"More recently, however, the weak level of aggregate demand has become a factor contributing to a lower-than-forecast inflation outcome." Only recently has the ECB turned its attention to sluggish demand in Europe as undermining efforts to shore up economic growth and avoid stagnation.

Extremely slow inflation, at 0.3 per cent, is seen as a worrisome sign of stalling in the eurozone economy. The IMF earlier this week cut its growth forecast for the region to just 0.8 per cent this year.

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Mr Draghi stressed in the statement to the IMF's steering committee that ECB policy "continues to aim at firmly anchoring medium- to long-term inflation expectations, in line with our objective of maintaining inflation rates below, but close to, 2 per cent over the medium term.

"In this context, we have taken both conventional and unconventional measures that will contribute to a return of inflation rates to levels closer to our aim." The ECB has set new programs of asset-buying and bank funding aimed at keeping interest rates low and sparking investment and consumption.

Mr Draghi stressed that if more action is needed to fight low inflation, "the ECB's Governing Council is unanimous in its commitment to using additional unconventional instruments."