Europe falls further into the deflation trap

The European Central Bank is taking a wait-and-see approach to its June policy measures but continuing deflationary pressures suggest it will have more work to do to boost recovery.

The eurozone slides ever closer to deflation but don’t expect any additional action from the European Central Bank when it meets in August. The bank took a fresh approach to policy in June but it will take some time to determine whether its moves gain some traction across the financial sector and the broader economy.

According to advance estimates, annual inflation in the eurozone fell to 0.4 per cent in July, to be at its lowest level since October 2009. Inflation remains critically below the ECB’s target for annual inflation of around 2 per cent.

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