Europe’s political leaders cannot afford to be complacent about deflation in the Eurozone

Figures released on 7 January by Eurostat indicate that inflation in the Eurozone turned negative in December. But should we be concerned about deflation? As Gerhard Illing notes, some economists have made the case that falling prices could have positive consequences, with the recent fall in oil prices in particular constituting a positive supply shock. He argues however that there are very real risks associated with persistent low inflation and that a complacent policy response could set the Eurozone on a path toward long term stagnation.