"Historically the ECB has only ever worried about inflation overshooting to the upside, they've never been particularly concerned about it being too low"
- Tim Drayson, head of economics at Legal & General Investment Management
European authorities are monitoring like hawks inflation reports, adding pressure on the ECB to take measures to reach the 2% target level. While some analysts are suggesting the improvement in the region could lift consumer prices, fears of wealth-destroying inflation are replaced by a different threat- deflation, as since April CPI has consistently undershot the ECB's target. The latest data from Eurostat, the statistical office of the European Union, showed annual inflation slowed to 1.1% in September, down from 1.3% a month earlier, and significantly lower than the 2.6% registered in the same period a year ago. CPI fell as the recent appreciation in the Euro against a basket of major currencies weighed on inflation. On a monthly basis, however, inflation rate ticked up 0.5%, in line with analysts' predictions, and much higher than a 0.1% gain recorded in August. Last week, Mario Draghi claimed inflation will stay around 1.5% in 2013 and ease to 1.3% in 2014. Though both figures are below the target level, Draghi pointed out they are completely in line with their baseline scenario. Weak inflationary pressures, allows the region's policymakers to keep an ultra-loose monetary policy as long as it is needed to achieve sustain recovery. On the back of recent economic data, economic optimism in the Eurozone soared to a two-year high in September. On the other hand, a period of negative inflation could make it harder for European economies to reach their debt-to-GDP targets, as it will be accompanied by weak growth figures.
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