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ECB Meets To Tackle Deflation While Ignoring Shrinkflation


As the Governing Council of the European Central Bank (ECB) convenes today in Frankfurt for its monthly policy meeting, markets are focusing on how the ECB will signal the initiation of its quantitative easing (QE) programme which is aimed at countering deflationary forces in the Eurozone.

In August, the annual inflation rate in the Eurozone hit a precariously low rate of 0.3% per annum. This is far below the ECB's target rate of 2% and also far below the average rate of inflation in the Euro area over the period 1991-2014, which was 2.18%.

Financial markets are already pricing in an ECB round of QE after ECB president Mario Draghi signalled such a move last month at the Jackson Hole central banker conference in the US, where he stated that the ECB would use 'all available instruments' to counter deflation.

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