Eurozone Inflation Sinks to 1.2%: ECB Declares "Substantial Progress"

One has to wonder what alternate universe the ECB resides in, for multiple reasons.

Mission Accomplished - Not

“We cannot yet declare ‘mission accomplished’ on the inflation front, but we have made substantial progress on the path towards a sustained adjustment in inflation,” Praet, considered a dove on the rate setting Governing Council, said ECB Chief Economist Peter Praet in Paris on Thursday.

Substantial Progress?

The ECB's target is two percent.

Progress in Pictures

ECB Expectations vs Reality

Economist Daniel LaCalle posted an interesting graphic in a Tweet a couple of days ago. I asked him for a higher resolution copy and he sent this.

Alternate Universe Progress

For the last 18 months, the ECB has made negative progress vs its stated goals, even with energy costs soaring.

The second reason the ECB resides in an alternate universe is that there is no benefit from inflation.

No Economic Benefit to Inflation

BIS Deflation Study

The BIS did a historical study and found routine deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

ECB and Fed policies have blown massive bubbles, making matters far worse.

Mike "Mish" Shedlock

No. 1-15

Given they are so export dependant that is most likely a very sensitive link and hence Junker statements about gun to head etc.


I'm very concerned about the complexities of euro, $, yuan and debt levels. Some butterfly wing beating somewhere will bring about an avalanche in the markets. Probably an event only identifiable in the rear view but the instabilities are building. ECB doublespeak is an attempt to cover up reality in the hope if enough people believe something it will become so.


The linkages leading to a weaker Euro, relatively stronger dollar, are deflationary globally. Locally less so. You don't want to be an emerging market borrower in $.


In a round about way, in this case, yes. Normally no. Aging populations just don't tend to buy more stuff. Family formulation by the young creates demand. The EU has poor family formation via demographics AND high young person unemployment leading to insecurity. The money goes into keeping zombies alive.


Print money out of thin air, that's deflationary