The European Central Bank (ECB) is expected to hold fire at its monetary policy meeting this week, despite a shock fall in inflation reigniting deflation concerns.
It came as something of a shock to most economists – and likely the ECB – when official figures released last week showed that euro zone inflation fell more than expected in July.
Inflation rose by 0.4 percent compared to the same period last year, failing to match expectations of 0.5 percent. It was the lowest level seen since October 2009 and below last month’s reading of 0.5 percent.
The region’s continuing sluggish growth saw the ECB unveil a host of measures at its June meeting designed to give the euro zone’s recovery a boost.
But July’s disappointing inflation data has boosted concerns that the region is heading towards a period of deflation, with even French President Francois Hollande telling Le Monde newspaper on Monday: “There is a real deflation risk in Europe… The ECB must take all the necessary measures to inject liquidity into the economy.”
Despite calls for action by Hollande and numerous economists, ECB President Mario Draghi is unlikely to unveil any further stimulus at the bank’s policy meeting on Thursday, as he waits for June’s interest rate cuts and a new loan program – dubbed the TLTRO – to take effect.
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