Eurozone policy-makers should heed deflation warning

Policy Brief

11/11/2015

The eurozone is once more on the brink of deflation. As of September, the official estimate of annual price inflation was -0.1 per cent. Inflation has declined steadily from a peak of around three per cent in late 2011.

Economists are divided on the potential dangers posed by deflation. Falling prices driven by large drops in the prices of commodities, such as oil, increase the purchasing power of consumers. If consumers spend these windfall gains on domestically produced goods and services, the increase in demand may act as a stimulus to growth.

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