Europe Has A “Severe Case Of Low-Flation”, Goldman Says

Thursday’s news that eurozone inflation came in at a brisk 0% in April was cause for some to celebrate the end of disinflationary pressures across the currency bloc. The fact that, for the first time in four months, prices didn’t fall on average is apparently proof that ECB asset purchases have rescued the region from deflation which, in a world built on debt, is an adversary that must be overcome at all costs. Here’sBloomberg:

Euro-area consumer prices ended a four-month streak of declines after the European Central Bank started pumping billions of euros into the bloc’s economy through its quantitative-easing program…

The improvement helps ECB President Mario Draghi’s case that large-scale asset purchases have already shown success in averting deflation in the 19-nation economy. Bank lending increased in March for the first time since 2012 and encouraging data from Germany to Spain point to a strengthening recovery even as the Greek crisis undermines confidence.

“The big bad deflationary spiral lasted all of four months,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “We expect headline inflation to accelerate to above 1 percent by year end as the depressing impact of energy prices fades,” while “core inflation will start to pick up as the effects of the past depreciation of the euro and the recovery of the economy feed through”…

Depressed by oil prices falling almost 50 percent in the second half of 2014, the euro-area inflation rate turned negative in December and fell to minus 0.6 percent at the beginning of the year, matching an historic low. Since then, signs have increased that the region’s flirt with deflation will be short-lived…

A “consistent policy response” allows the ECB to “envisage with confidence that the weak and uneven recovery experienced in 2014 will turn into a more robust, sustainable upturn,” Draghi said in the foreword of the institution’s annual report published last week. “Inflation will return without undue delay to the ECB’s objective of below, but close to, 2 percent over the medium term.”

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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