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Weak inflation in Europe sparks deflation worries

Inflation rate in Eurozone dropped to 0.3 percent in August according to figures released by Eurostat on Friday, spurring worries that Europe might fall into a deflationary spiral. The figure was 0.4 percent for July, meaning deflation may prove a significant risk for the Europe economy in forthcoming period. "It seems deflation risk is still high despite the measures taken by European Central Bank," said Erdal Kartal, an analyst at Destek Securities based in Istanbul. Economists see deflation as a notable risk factor as consumers, expecting prices to fall, might spend less, bringing the stuttering Eurozone economy to a complete halt.
"The ECB should speed up process for further stimulus packages. Europe economy can fall into a deflationary spiral," Kartal said.
He stressed that the main concern of Mario Draghi, the head of the European Central Bank, is a Japanese type deflation problem in which consumers delay their spending in hopes of cheaper prices and halt the money flow within the economy. The decrease in inflation rate, largely attributed to the low food and energy prices, is likely to increase pressure for further measures on the European Central Bank. Draghi said recently that the ECB was ready to use all available tools to prevent further drop in inflation, clearly suggesting markets may expect quantitative easing which is expected to reduce the value of Euro.

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