As we enter 2016, Mario Draghi’s prediction that the European Central Bank will achieve its inflation target of just under 2 percent is being met with increasing skepticism — and for good reason.
Euro zone inflation is way below target and judging from the meager stimulus package agreed to by the bank’s governing council at its December meeting, Europe’s central bank does not appear to be in any particular hurry to correct the situation.
That’s playing with fire. The perception of indifference on the part of the central bank to its inflation target increases the danger that under the weight of plunging crude oil prices and fragile global demand, euro zone markets develop a deflationary mindset or bias that turns current sluggish inflation into actual deflation.
New euro zone monetary stimulus is needed precisely to prevent this from happening.