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Lagarde Warns of Eurozone Deflation
With inflation shrinking to only 0.8% last year, the eurozone could fall into a dangerous period of deflation, warns Christine Lagarde, managing director of the International Monetary Fund.
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With inflation shrinking to only 0.8% last year, the eurozone could fall into a dangerous period of deflation, warns Christine Lagarde, managing director of the International Monetary Fund.
"This is a new risk on the horizon," she tells the World Economic Forum in Davos, Switzerland. The European Central Bank favors an inflation rate just under 2% to encourage growth. The IMF estimates the chance of deflation in the 18-nation region at 15%-20%.
Analysts note that deflation discourages business investment and dampens spending as consumers wait for prices to fall. Japan, they point out, has been struggling for years to break free of such a downward spiral.
Lagrande and others worry that global economic growth could be hurt by the U.S. Federal Reserve's decision last month to slowly reduce its bond-buying monetary stimulus activities.
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