The euro zone is on the brink of deflation and the European Central Bank’s credibility is at stake over its ability to meet its target for consumer price rises, the deputy governor of the Bank of Italy said on Wednesday.
The warnings by Salvatore Rossi are starker than the tones normally used by ECB officials, who tend to play down the risk of deflation.
“The euro zone is on the brink of deflation,” Rossi said in a speech at Verona university. He noted the overall inflation rate in the currency bloc of just 0.4 percent in October and that only two of its 18 countries had inflation above 1 percent.
Rossi said the problem was to a large extent due to weak demand and there was a risk that long term inflation expectations would become “unanchored.”
“The ECB’s credibility in meeting its price stability goal is at stake,” he said. The ECB aims for consumer price inflation below but close to 2 percent.