Fall in Eurozone Prices Inflames Fears of Deflation

Fall in Eurozone Prices Inflames Fears of Deflation

According to the article consumer prices have been falling since the past couple of months in the 19-country Eurozone which has led to fears among some economists of a sustained period of falling prices that could possibly result in economic stagnation and higher jobless rate and deflation. However, some economists feel that falling prices are an advantage for consumers and are actually helping many European countries to become internationally competitive.

Those economists who fear this trend of falling prices believe that when price declines consecutively then there is a tendency  for consumers to constantly delay buying products in hopes of prices decreasing even more. So as a result, consumer spending decreases, companies revenue also decreases which results in these companies facing pressure to dismiss workers or reduce wages. This all leads to a never ending circle of declining economic activity.

This is why the European Central Bank has recently decided to create a bond buying program, in the hopes of stimulating the Eurozone economy and nudging inflation closer to its target of just below 2 percent.

http://www.nytimes.com/2015/01/31/business/eurozone-inflation-unemployment.html?_r=1