OECD Urges ECB To Act Soon to Avoid Deflation

The European Central Bank has come under further pressure to head off a potentially destructive fall in prices across the eurozone after the Organisation for Economic Cooperation and Development (OECD) warned that without quick action the situation could worsen.

The Paris-based thinktank said in its twice-yearly global economic outlook that the eurozone remained mired in a period of low growth coupled with high unemployment and low inflation that threatened to derail the recovery.

Its acting chief economist, Rintaro Tamaki, urged the ECB to end months of procrastination with policies to boost demand that could include mimicking the US Federal Reserve and Bank of England, which have printed billions of dollars and pounds to make it easier for households and businesses to borrow money.

He said: “Given persisting downside risks, high unemployment, below-target inflation and high levels of government debt, monetary policies need to remain accommodative in the main OECD areas.

“In particular, we call on the ECB to take new policy actions to move inflation more decisively towards target and to be ready for additional non-conventional stimulus if inflation were to show no clear sign of returning there.” The warning will prove embarrassing for the ECB chief, Mario Draghi, and the rest of the central bank’s governing council, which have come under sustained criticism for allowing inflation to fall in recent months to as low as 0.5% without easing credit conditions.

Economists fear that falling prices will convince shoppers to delay major purchases, forcing employers to cut back production and scrap planned wage rises. Without a steady, controlled rise in prices, there is little incentive for consumers to bring forward purchases and speed up economic growth.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza