European Central Bank officials are concerned that the eurozone faces deflationary pressures, especially as the euro has been rising in value against the United States dollar.
A recent compilation by Deloitte Global Economist Network stated that the latest quantitative evidence demonstrated that inflation in Europe was waning.
In August, the consumer prices dipped 0.3 per cent after having fallen 0.2 per cent in the previous month.
When volatile food and energy prices were excluded, core prices were up 0.2 per cent in August as against a year earlier.
The difference between headline and core inflation is explained by the sharp decline in energy prices.
By country, overall prices were down 0.4 per cent in Germany, unchanged in France, down 0.9 per cent in Italy, and down 0.6 per cent in Spain, while the sharpest decline took place in Greece where prices fell 2.3 per cent.
That apart, the report noted that the weak inflation environment led the ECB to consider a shift in policy, similar to what was enunciated by the US Federal Reserve recently.
In the case of the ECB, its President, Christine Lagarde, was quoted to have said, “If credible, such a strategy can strengthen the capacity of monetary policy to stabilize the economy. This is because the promise of inflation overshooting raises inflation expectations and therefore lowers real interest rates.”
She was said to have suggested that the ECB might shift from targeting an inflation rate of just below 2.0 per cent to one in which 2.0 per cent would be the average.
While Lagarde has discussed this, no new policy has been decided upon, the report noted, “It could be challenging to achieve consensus among ECB leaders.”
Specifically, Germany’s Jens Weidmann, who heads the Bundesbank, has often been at odds with other ECB leaders on such issues.
He was also quoted to have said, “The more widely we interpret our mandate, the greater the risk that we will become entangled with politics and overburden ourselves with too many tasks.”
