Inflation returns to Euro zone Essay Example | Topics and Well Written Essays - 500 words

Inflation returns to Euro zone - Essay Example One of the main indicators of the inflation pressure is the producer prices. The reason is that unless these prices are absorbed by retailers using profit margins which then translate to consumer prices. Thus, other the bond buying program that had been introduced by European Central Bank in March, other measures undertaken to boost the economy of Euro zone is cutting down main interest rate and the deposit rate. However, it is still too early to stay in the comfort zone about this issue. It is still early to indicate the trajectory of the future policy since inflation will continue depending on the prices of oil. This is considering the weak euro area growth. Firstly, the dynamics of the oil prices continue to drive much of the inflation in 2015 mostly in the short term. In addition, despite the rise in May’s core inflation, more of the general momentum of inflation is likely to remain muted against an overall of still domestic demand of the euro area together with the capac ity in the labor market. Considering that most of the policy maker (Morris 1) spent most of 2014 fearing the worsening of deflation, then the worry is that if the prices are entrenched, then the consumers and other businesses are likely to delay their purchases. Thus, there are unlikely dips into the level of deflation with oil prices diluting the risks of deflation. The overall weakness of the euro and the improved economic activity of the euro zone are other important factors in diluting the risk of deflation.