Inflation Will Likely Weaken Again in Europe As Coronavirus Spreads

Posted Wednesday, February 26, 2020 by
Skerdian Meta • 1 min read

Last year, the Eurozone economy got pretty close to recession, as it was slowing together with the global economy. Inflation fell below 1%, which got the European Central Bank (ECB) panicked. They cut deposit rates further into negative territory and restarted the QE programme. Inflation improved somewhat, jumping to 1.3%, but core inflation fell to 1.1% again last month.

Manufacturing has improved a bit too, but it still remains in contraction. Now that coronavirus has broken out and is also breaking out in Europe, the economy will start weaken again, I suppose. So, the ECB is getting worried again. ECB governing council member, Gabriel Makhlouf made some comments a while ago:

  • ECB will consider various options for inflation target
  • ECB must avoid deanchoring of inflation expectations
  • Inflation range may make ECB policy more credible
  • There continues to be uncertainty about exactly what “close to, but below” means
  • Have to consider whether current CPI data is helping to communicate the ECB’s objectives in the most effective way
I reckon most policymakers in the central bank do want to change the current inflation target mandate. However, some of them appear to have differing views so we’ll still have to see what conclusions can be drawn once there is a clear definition that is preferred.
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