Watt, A., (2013), “Bad and Good News on Euro Area Inflation”, Social Europe Journal, 16 Οκτωβρίου.
The latest euro area monthly inflation numbers are out and manage to give cause for both gloom and cheer. First the bad news: inflation is too low.
The euro area average figure of just 1.1% is a cause for concern because it is so low – only a little over half what the ECB (rightly) considers compatible with its goal of maintaining price stability. Moreover, it has been falling rather continuously over the year. This is no surprise given high and rising unemployment and the huge amount of slack in the economy. If circumstances were different – a “normal” downturn – below-target inflation might be good news, in that it signals that the central bank or fiscal policymakers have scope to loosen policy. But in the current context of a liquidity trap and with austerity certain to continue, albeit in milder form, it is worrying. It implies low pricing power for firms, and thus limited incentive to invest, virtually no disincentive to postpone purchases and, not least, very slow erosion of the real value of outstanding debt.
Σχετικές Αναρτήσεις
- Whyte, P. and Tilford, S. eds., (2013), The future of Europe’s economy: Disaster or deliverance?, Center for European Reform, 18 Σεπτεμβρίου.
- The Economist, (2013), “Generations: On the meaning of inflation”, Free Exchange Economics Blog, 11 Σεπτεμβρίου.
- Darvas, Zsolt, Varga, Balázs, (2013), “Inflation persistence in Central and Eastern European countries”,Bruegel Working Paper, N. 2013/04.