Home > Europe, Monetary Policy > Eurozone Deflation: Hiding in Plain Sight

Eurozone Deflation: Hiding in Plain Sight

In the ECB’s June press conference (yes, I’m a month behind) Draghi’s comments about low inflation were really awful, but his comment about deflation was just as bad.

Question: I have two questions. The first one is: do you see any risk of deflation in some countries in the euro area? […]

Draghi: […] First, on deflation: the price path that has been foreseen by the staff projections is lower than the price path foreseen in previous staff projections, both for this and next year. This is mostly due to a decrease in the price of oil. If you discount oil and food, you see that the difference between the two price paths, of the previous and of today’s projections, is much smaller. Second: is there deflation? We must first ask ourselves what deflation is. Deflation is a protracted fall in prices across different commodities, sectors and countries. In other words, it is a generalised protracted fall in prices, with self-fulfilling expectations. Therefore, it has explosive downward dynamics. We do not see anything like that in any country.

He waffles around a bit here, but he is clearly saying “no” to the risk of deflation, “no” to a “generalized protracted fall in prices” in any country.  I know Eurostat is hard to navigate, but deflation is really not so hard to find:

HICP at Constant Taxes: Greece, Spain, Cyprus

HICP at Constant Taxes: Greece, Spain, Cyprus. Source: Eurostat dataset prc_hicp_cann

Categories: Europe, Monetary Policy
  1. James in London
    July 5, 2013 at 06:45

    I think you are too harsh on Draghi here. If he were worried about real deflation he couldn’t publicly admit it, that would be irresponsible and possibly dangerously self-fulfilling. I wonder whether by being so explicit about the dangers he is still actually scaring the right horses at the ECB, hence his ability to give “forward guidance” yesterday. Maybe I am being too Machiavellian but he is Italian, has long experience of Italian politics and works in the middle of the Brussels bureaucracy.

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