Davos 2014: Eurozone inflation ‘way below target’


The head of the International Monetary Fund (IMF) has warned that deflation remains a real risk to economic recovery in the eurozone, the BBC informs. Despite signs of recovery across the world, Christine Lagarde said that potential risks must not be ignored. One of these was the fact that eurozone inflation, at 0.8 per cent, remained “way below” the 2 per cent target set by the European Central Bank (ECB). She was speaking on the final day of the World Economic Forum, in Davos. Deflation can hinder growth, as prices and the value assets continue to fall. Lagarde told a Davos debate on the global economic outlook, that – despite signs of recovery everywhere, there were “old risks” and “new risks”. Old risks included any failure to continue banking reforms and re-balance economies, she said. New risks were, how emerging economies responded to the winding down of economic stimulus measures in the US, and the problems facing economies whose inflation rate remained stubbornly below target. Mario Draghi, president of the ECB, told the same conference that the bank was ready to act if necessary, but he insisted that deflation was not yet an issue for the eurozone.
He said eurozone inflation is “subdued, and expected to remain subdued” for about two years. “The longer it stays at a low level, the more serious risk of deflation,” he said.

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