Deflation threat raises pressure on the ECB

August’s fall in euro-zone HICP inflation from 0.4% to 0.3% left it at its lowest rate sinceOctober 2009, when it was negative, and well beneath the ECB’s target of “below, but closeto, 2%”. What’s more, the economy stagnated in Q2 and survey data suggest that therecovery may have already passed its peak. And consumers’ and firms’ inflation expectationsare low and falling. Accordingly, the ECB will have to offer stronger hints ofbolder policy support to come at tomorrow’s meeting to address the growing risks of deflationin the single currency area.