Last Friday gave us a glimpse of the biggest danger facing the eurozone in the next decade: a period of sustained deflation. Eurozone core inflation – without energy prices and other volatile items – tumbled in October to an estimated annual rate of 0.8 per cent.
I would hope the European Central Bank would cut interest rates further this week. But I doubt even a marginally negative interest rate would avert a slide into deflation.
Its deep cause lies in the way the eurozone responds to its debt crisis – through austerity and falling real wages in the periphery and a lack of adjustment in the north.
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