Frequently Asked Questions (FAQ) on deflation risk in the eurozone

2/6/2014 - Report
ic_blogtagDeflationEurozoneInflationPrice
What are the main drivers for the current disinflationary cycle? High unemployment, cheaper labor, negative credit growth, overcapacity in the industry and cheap raw materials.

Which sectors have been most impacted? The closer to the consumer, the cheaper you have to be. Food, transport, clothing, household equipment are the most impacted.

What is the impact on the private sector? First, ccorporates' profitability is at risk through reducing margins. Second, access to financing can be restrained by rising cost of credit in real terms.

What is the impact on the public sector? The fall in nominal interest rates, if coupled with too low inflation, could endanger debt sustainability, notably if primary deficits are high.

Should we fear deflation risk in the eurozone? In our view pockets of disinflation will be mushrooming in 2014 but deflation � la Japanese is not our central scenario; in addition should milestones be breached, the ECB will intervene. Spain, Italy, Portugal and Greece are on our watch list.

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Frequently Asked Questions (FAQ) on deflation risk in the eurozone - Report