EC Says Eurozone Deflation Risks Are Low

The risk of deflation in the euro zone is low, the European Union’s executive arm said on Monday, despite warning that inflation is expected to slow this year.

In its Spring Economic Forecast, the European Commission said inflation in the 18-member bloc would fall to 0.8 percent in 2014 from 1.3 percent last year.

It added that inflation was expected to pick up in 2015 to 1.2 percent – but this remains well below the European Central Bank’s (ECB) target of close to 2 percent.

“The risk of outright deflation, defined as a generalized and self-reinforcing fall in prices in the euro area as a whole, remains low,” the Commission said.

“For such a scenario to materialize, inflation would have to drop sharply to almost zero in the core countries of the euro area. Shocks that would trigger such a drop in core inflation are very unlikely.”

It comes amid wide-spread fears of deflationary pressures in the euro zone, with a number of analysts calling on the ECB to use policy tools such as quantitative easing to combat persistently low inflation.

via CNBC

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