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Commenting on Eurozone deflation of 0.2% in December, Head of Research of the Adam Smith Institute, Ben Southwood, said:
Eurozone deflation needs to be stopped as soon as possible to forestall a return to the darkest days of the crisis.
The European Central Bank must act now—easing monetary policy by buying bonds—or, even better, changing their whole regime, and targeting the price level, or even nominal GDP, instead of inflation.
There is only one positive angle to Europe's macroeconomic state: that much of the downward pressure on inflation is coming from supply-side improvements, like cheaper fuel and food.
But demand-side inflation is hardly healthy, and after years of lacklustre income growth the ECB should be overshooting, not undershooting their target.
Continued depression will only undergird support for extremist parties in the peripheral areas of the bloc, undoing all the progress that has been made in recent decades.
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The Adam Smith Institute is an independent libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.