Feb 25 (Reuters) – Never a hot-bed of monetary policy
activism, the European Central Bank may soon find itself forced
into an uncomfortable period of experimentation.
At issue is inflation, or rather its increasing scarcity:
euro zone inflation fell at its fastest ever month-on-month pace
in January, down 1.1 percent from December. Only three small
countries, Estonia, Slovakia and Latvia, saw consumer prices
rise in the month, with the rest flat or in outright deflation.
Annual inflation came in at 0.8 percent, far below the ECB’s 2.0
percent target and slightly below economists’ expectations.
Indeed with Germany seeing a month-on-month decline in
prices, the supposed contrast between a healthy core and
sclerotic periphery is harder to see, at least in inflation
“The disinflation trend is broad-based across the euro zone.
All countries are contributing to lower inflation. It is not
just the internal devaluations of program countries that are
pushing euro zone inflation down,” Andrew Bosomworth of Pimco
wrote in a note to clients, referring to countries like Greece
and Ireland which are following programs of economic reform
which have wage, living standard and price compression as
unwanted side effects.
Just think what might happen to prices if France and Italy
were to some day actually launch the economic reforms they’ve
been threatening these many years.