Former ECB Member Says Deflation Fears Unfounded

Consumer prices in the euro zone are stable rather than too low, former European Central Bank (ECB) board member Jürgen Stark said, countering a widely held view that the current low level of inflation could derail the economic recovery in the euro zone.

“I miss the term price stability…Low inflation and price stability will boost real disposable income and will help to foster private consumption. This is good news,” Stark told CNBC in an interview.

Consumer prices rose by 0.5 percent year-on-year in May, according to official statistics released by Eurostat earlier this month. This marked a fall from April’s 0.7 percent and is well below the ECB’s target of inflation below of close to, but below 2 percent.

He said the International Monetary Fund, the Organisation of Economic Cooperation and Development and the ECB were all participating in a discussion about “too low” inflation which was “irrational”. The decline of consumer prices index was mainly driven by decline in oil and commodity prices and was also a reflection of the ongoing adjustment of prices in the periphery. That adjustment was “urgently needed” he said.

“One can really understand and explain why the inflation rate is so low and…it is in my view not a threat,” Stark said. “The discussion, all in all, in my view, is really irrational.”

via CNBC

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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