Euro zone inflation back at five-year low in November
Annual inflation
in the euro zone came in at 0.3% in November which shows concerns over
deflation are still a threat. Data from Germany showed inflation was the lowest
in almost five years. Germany is the euro zone’s largest economy. The European
Central Bank has a target of nearly 2%. This has steadily lowered since 2011
when the target was 3%. The cental bank
considers any number less than 1% to be in its “danger zone.” In class we have
discussed the negative effects of deflation. The ECB may decide to use quantitative
easing to help stimulate the economy but there is some resistance from Germany
from using a program like this. The euro zone unemployment is currently at
11.5% which is still a concern that may be more important than the inflation
issue for the economy. Food prices and energy have fallen making a significant
which is part of the reason for the low inflation. Removing those two from the
equation core inflation is at 0.7% which is still low but not as concerning as
the 0.3% number.
Quantitative easing is probably one of the few solutions to the deflation issue in Europe. Although Germany is skeptical about the policy, it might be in the best interests of other countries in the European Union to do so.
ReplyDeleteSince the ECB is heavily influenced by the Germans, the mere idea of high inflation scares them. The use of QE is one of the few tools that the ECB has left to fight the "danger zone" and improve. While high inflation hinders an economy, deflation chokes an economy to leads it to a harsh downward spiral.
ReplyDeleteThe ECB should increase it's money supply because that would bring inflation up to its natural rationed help stimulate Europe's slowing economy. They really should not be worried about inflation because it as so far below the natural rate. If the EU wants to start getting the economy going again they need to increase the money supply.
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