ECB's Constancio stresses core inflation worry despite market rally

November 10, 2016 10:12 AM EST

European Central Bank Vice President Vitor Constancio speaks during a Reuters Newsmaker event in New York February 19, 2016. REUTERS/Brendan McDermid


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STOCKHOLM (Reuters) - The euro zone's economic recovery is continuing but low core inflation, a key gauge of price growth, remains a cause for concern, European Central Bank Vice President Vitor Constancio said on Thursday.

Euro zone inflation has been ticking higher in recent months and financial markets have started to price in further increases on both sides of the Atlantic since Donald Trump's surprise victory in the U.S. presidential election on Wednesday.

Constancio acknowledged the recent economic improvement but poured some cold water on market enthusiasm, noting core inflation, which strips out volatile energy and food prices, is low and not accelerating.

"I feel confident that the recovery in the euro area will continue," Constancio told a business forum in Stockholm.

"A cause for concern is still the fact that core inflation ... is not accelerating and it's rather low," he added.

Core inflation in the euro zone slowed to 0.7 percent in October from 0.8 percent in the previous month even as headline price growth accelerated to 0.5 percent.

The ECB is trying to bring headline inflation to its target of almost 2 percent via aggressive bond purchases, sub-zero interest rates and free loans to banks.

The euro zone's central bank will decide on the future shape and duration of its bond-buying program in December and is almost certain to extend purchases beyond its current March deadline.

Constancio, one of the most prominent doves on the ECB's executive board, did not mention Trump's victory but he warned of geopolitical and economic risks that could scupper a recent stockmarket rally.

"That's a global risk that is out there and, if anything, has increased recently," Constancio said.

Trump's protectionist stance during the campaign has been a source of concerns in Europe, for which the United States is the largest trading partner.

European Commission President Jean-Claude Juncker called on Thursday for clarity from Trump on this and other key issues.

(Reporting by Simon Johnson and Daniel Dickson; Writing by Balazs Koranyi and Francesco Canepa in Frankfurt; Editing by Mark Trevelyan)



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