- POSTED: 16 Jan 2014 21:30
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There is only a "limited" risk of deflation -- or falling prices -- in the 18 countries that share the euro, the head of Germany's central bank or Bundesbank, Jens Weidmann, said on Thursday.
FRANKFURT: There is only a "limited" risk of deflation -- or falling prices -- in the 18 countries that share the euro, the head of Germany's central bank or Bundesbank, Jens Weidmann, said on Thursday.
His remarks came after, and in contrast to, a warning from the head of the International Monetary Fund on Wednesday that the "ogre" of deflation was a potential threat to the world economy.
Eurozone inflation slowed to just 0.8 percent in December from 0.9 percent in November, according to the latest data published by the Eurostat statistics agency.
That is way below the European Central Bank's definition of price stability.
The ECB believes that inflation rates of close to but just below 2.0 percent are compatible with sustainable economic growth, but the current low level of inflation is causing concern that falling prices could undermine growth prospects.
ECB chief Mario Draghi has repeatedly dismissed such concerns.
And Bundesbank president Weidmann, a member of the ECB's policy body, agreed with Draghi's analysis.
"In the current economic situation, the risk is limited that we'll see broad-based deflation in the euro area," he told a conference in Berlin.
"Long-term inflation expectations are firmly anchored at around 2.0 percent. What is more, we're on the brink of a period of economic recovery. And that is likely to push inflation rates up gradually again," Weidmann said.
He argued that the current low level of inflation was a result of adjustment efforts in the crisis-hit euro countries.
"These adjustments are unavoidable if economic structures are to become more competitive and put government finances back on a solid footing," Weidmann said.
On Wednesday, IMF head Christine Lagarde had warned that while growth in the global economy was picking up, there were "rising risks" of deflation.
The global economy is growing below its potential rate of 4.0 percent, Lagarde noted, which means inflation is muted but opens up the risk of deflation or outright falls in prices.
"With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," Lagarde said warning against undue haste by central banks to wind down easy-money policies.