There is a lowflation in Europe: alert!

So, Europe lives during long time the lowflation. Since 2016 it wasn’t much more 1% at the place of 2% needed.

The main danger of this phenomenon consists of its combination with minimal economic growth. The nominal income falls, while governmental debt remains unchanged, aggravating the situation of debtors.

The main reason for extremely low inflation is the economic crisis, which began in 2008-2009. At those days energy prices felt down, what have led to a decline in other goods. It has proved the expectations (even fears) of European Central Bank (ECB) and other regulators of monetary policy.

The European Central Bank (ECB) is trying to change the situation through quantitative easing, buying government and now corporate bonds. Printing money for large-scale state investment programs remains a reserve, but the ECB is trying to avoid this step.

It does influence the emerging markets too. Emerging-market exchange rates get bounced around as capital shifts in and out -– flows that have been amplified by years of cheap money in developed countries. And when money leaves and currencies weaken, it has a bigger impact on prices than in developed countries. That’s one reason why emerging markets can’t hit the gas too hard. They’re expected to help the world economy with some more monetary easing in 2020. But policy makers in countries like Mexico and Russia, scarred by recent or distant currency crises, are reluctant to slash borrowing costs — even with inflation around the lowest levels in decades. The result is high interest rates, relative to inflation — and strong currencies. It’s an alluring combination for investors struggling to find returns elsewhere.

Lowflation is mostly linked to structural factors: new technology, the level of debt. Rapid rate-cuts won’t address those issues, but “may create some currency volatility. And keeping rates high also leaves room to respond in case 2020 is the year of the global recession everyone fears.

So finally all of the world’s central banks have to invent more creative approach, because there is no tools to act differently by the moment.

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