Experts Fear European Deflation as Deadly Threat

Some economists and policymakers are beginning to worry that a danger of deflation in Europe, similar to the situation that strangled Japanese growth for most of the 1990s, is a bigger threat than inflation.

“It’s nuts: how can they be concerned about the inflationary impact of this?” says Carl B. Weinberg, chief economist of High Frequency Economics.

“If I were the head of the ECB, I would be printing money to avert the decline in the money supply,” he told the New York Times.

Deflation is commonly defined as a decrease in the general price level of goods and services. Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money — allowing one to buy more goods with the same amount of money. (more)