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Fighting Deflation and Tempering Inflation

Wolfgang Münchau, Financial TImes | December 8, 2008

The European Central Bank is forecasting annual inflation rates for 2009 at 1.1 to 1.7% and for 2010 at 1.5 to 2.1%. ++ Yet, Interest rates are being cut below these markers. ++ Banking officials claim that "twenty per cent inflation is ultimately not as harmful as 5 per cent deflation." ++ Buying longer-dated government bonds, adding short-dated securities to balance sheets, and even imposing negative interest rates are plausible solutions - yet, acting too aggressively now could mean greater inflation in the future.