Should the European Central Bank Revise Its Inflation Target?

Should the European Central Bank Revise Its Inflation Target?

Last week when Mario Draghi, the President of the European Central Bank (ECB) was asked whether the institution should reconsider revising the target of two percent inflation set by it, he replied "It would test our credibility if we were to change the target when it's taking more effort to achieve that target. There hasn't been any discussion about changing the target for inflation."

In the year itself the ECB has trimmed its own forecast for the coming next three. However, looking at the global economic conditions and the recent market trends it's time that the ECB faces reality and admits defeat forgetting about the backtrack.

Draghi said that consumer prices will increase a meager 0.1 percent in the current year in the euro zone. Some months may even witness a drop in prices. The EBC expects the prices to grow just at a 1.8 percent yearly rate by
2017. Thus reaching the two percent target which is set as its goal is rather a fiction than a fact. The institution bid goodbye to the target if the current environment continues.

All central banks worry when the inflation moves at a very slow rate. That increases the anxiety of sluggish consumer prices which ultimately leads to the path of deflation. A long term drop in prices make customers hope for better bargains in the future and the shopping spree is curtailed which is bad news for the economy.

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