Foreign currency specialists HiFX provide comment on the eurozone inflation rates
Chris Towner, managing director of advisory HiFX, said: “How can you stop a freight train? This is the situation that the European Central Bank finds itself in with inflation continuing to trend lower; similar to the deflationary spiral that Japan was exposed to back in the 1990s. Inflation is currently at 0.4% in Europe and the alarm bells which have been ringing throughout this year are now being replaced by evacuation orders. Despite Europe’s fragile recovery, fears of a sovereign default have been replaced by fears that Europe is going to enter a deflationary period by the end of this year. Deflation is one of the greatest fears of Central bankers because as soon as consumers expect prices to go lower, they hold off from buying purchases, believing that they will be able to buy more goods for the same amount of money in the future.
“The ECB, which has addressed the situation by cutting rates, now need to look for more substantial weapons in order to fight the deflation enemy. Also interesting to note, is that with the UK having halted its QE programme and the US close to exiting theirs, inflation is close to 2% in both of these countries, which is the level deemed to be not too hot or cold. The ECB policymakers would love to be in this position and will be working hard behind the scenes wondering how they are going to get there.”
