The European Central Bank (ECB) should introduce additional monetary policy stimulus in December to prevent the risk of deflation in the European Zone, urges the chief economist of the Bank of Spain.
Oscar Arce, told that there is a strong tendency for prices to fall, not only in Spain but also throughout the European Zone. Therefore, policy makers need to act quickly to fend off such risks.
The European consumer price index, which has been below zero since August due to the coronavirus pandemic has affected demand and brought inflation much lower than central bank targets.
Deflation, lowering the general price of goods and services up to wages, can bring damage to the economy. This situation can be seen during the Great Depression.
The market is indeed expecting to relax at the December policy meeting following the instructions given by the ECB previously, but it is still unclear what steps the central bank will take.
While the ECB predicts that consumer prices will rise again in early 2021, it is also poised to re-calibrate all its monetary policy tools next month and urge the government to increase fiscal spending.
