By James Saft
(Reuters) – Europe faces a threat of deflation, which it seems unlikely to be willing to fight.
Core inflation in the euro zone fell sharply in October to just 0.8 percent a year, the lowest since early 2010 and a level which sets the red deflation light flashing.
Deflation, or even low inflation, is particularly bad news for Europe, whose particular burden is too much debt. Inflation eats away at the real value of debt, thus making it easier to bear. Deflation does the opposite.
This raises pressure on the European Central Bank, which has a monetary policy meeting next week, to do something radical, though they have but limited options when it comes to the what and the how.
Buried in the inflation figures was one number which shed light on the euro zone’s plight: the prices of services fell 0.2 percent in October, and are down 1.2 percent from a year ago. Services, of course, are what Europeans perform largely for one another, and since the number of people needing work so far outpaces the available opportunities, a crushing deflation in what they can charge ensues.