Until recently it was debatable whether Europe’s economy was recovering. No longer. Its recovery has stopped. The question now is whether the stagnation will tip over into something worse.
In an Aug. 22 speech, European Central Bank President Mario Draghi moved a little closer to acknowledging the danger. This aroused hopes that he would announce decisive action on Sept. 4, after the next meeting of the bank’s policy committee. For Europe’s sake, he’d better deliver.
The preliminary estimate of euro-area inflation in August from a year earlier is 0.3 percent — yet another drop. Recall that the ECB’s target is “close to, but below, 2 percent.” Outright deflation, with all the perils that brings, is an imminent threat. In the longer term, inflation expectations also seem to be slipping: The standard measure of expected inflation five years ahead has dropped to less than 2 percent.
Bloomberg
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