By Desmond Lachman, Resident Fellow, American Enterprise Institute
One has to wonder what Olli Rehn, the European Union’s Commissioner for Economic and Monetary Policy Affairs, is looking at when he boldly asserts that deflation is not a risk for Euro member countries. Not only does he seem to be glossing over the rapid pace of disinflation that has already occurred in Europe. He also seems to be turning a blind eye to Europe’s unusually large labor and product market gaps as well as to the marked deceleration in Europe’s money and credit supply aggregates.
Over the past year, European inflation has come down sharply in response both to a rise in its unemployment rate to a record 12.2 percent and to the very large gaps characterizing its product markets. Indeed, European consumer price inflation decelerated from 2.5 percent to 0.9 percent in the year ended October 2013, or to less than half the 2 percent inflation target of the European Central Bank (ECB). Meanwhile, in countries likeRead More »from Europe Is In Deflation Denial