Deflation ‘avoided in the eurozone’

European Central Bank policymaker Christian Noyer said over the weekend that it seemed that the risk of deflation had been avoided in the eurozone, even if inflation remained too low.

The eurozone inflation rate held at a rate of 0.5% last month, well below the ECB’s target of close to, but below, 2% and within what ECB president Mario Draghi has called the “danger zone”.

Mr Noyer said it was a paradox that inflation remained weak despite very accommodative monetary polices, adding: “Even if the risk of deflation seems to have been avoided, we have . . . price increases that are too low.”

Mr Draghi had said a raft of policy measures introduced last month would help lift inflation and support bank lending, but the ECB stood ready to create money if required.

Mr Noyer, who was speaking at an economic conference in the French city of Aix-en-Provence, also said questions remained on growth in China. US “dynamism” had so far not been as high as expected, while Europe “struggles to take off”.

Meanwhile, the ECB will keep interest rates very low for a long period to ensure monetary stability, but eurozone governments must do their part to boost growth and cut debt, said ECB policymaker, Benoit Coeure.

The euro zone has a major investment deficit, said Mr Coeure, a member of the ECB’s executive board, adding that governments must also “invest in Europe” by co-operating more closely — another condition for stability.

Saying the current economic situation of high debt, high unemployment and weak growth was very worrying, Mr Coeure said: “The only way out is by investing.”

- Reuters