The ECB Deflation Trap
|Euro zone inflation has been on a steady decline for two years. The last time the annual rate was at the 2.0 percent ECB target was January 2013. Why do central banks around the world consider low inflation such a danger? Is it because it flirts with deflation and the dread effect of postponed consumption on an already weak economy or are there connections to the massive debt overhang of many modern governments? What would seem to be a boon for the consumer is anathema to economic planners. Eurozone annual CPI was 0.3 percent in November and the full effect of an almost 40 percent drop in crude oil prices has yet to be felt in consumer prices. Is deflation the great historical threat and is the eurozone tilting toward the abyss? Join us for an examination of the historical and theoretical antecedents of deflation and a discussion of its effect on ECB and Fed policy and their currencies.
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