One step closer to euro zone deflation

This is from CNBC:

Euro zone consumer inflation came in lower than expected in December, adding to concerns that the euro zone could be heading towards a period of deflation.

Consumer prices rose by 0.8 percent year-on-year in December, below the 0.9 percent expected by economists. It comes after inflation increased by 0.9 percent in November.

Day by day it is becoming more and more clear that the euro zone is heading for deflation and despite of this the ECB so far has failed to act and it is blatantly obvious that the ECB is in breach of its own mandate to secure “price stability” defined as 2% inflation.

The failure to act is also a clear demonstration that the ECB in fact has an asymmetrical monetary policy rule (what I have called the Weidmann rule). The ECB will tighten monetary policy when inflation increases, but will not ease when inflation drops.

Depressing…

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2 Comments

  1. I wonder to what extent anyone thinks the 2% target is credible anymore.

    Reply
  2. Benjamin Cole

     /  January 12, 2014

    It is now obvious that a very bad idea is an independent central bank, especially one with a single mandate.

    Not only bad policy, but horrible democracy.

    And just how should a Spaniard vote now?

    A European Central Bank is an experiment that has failed. Sadly, I think the ECB will successfully asphyxiate Europe for years more….

    Reply

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