According to recent estimates by the ECB, euro-area inflation will average 1.0 per cent this year, 1.3 per cent in 2015 and 1.5 per cent in 2016. Our forecasts paint a similar picture for consumer prices in Italy. We are not in a situation of generalized price reduction, of deflation.
But even a long period of excessively small price changes can have undesirable consequences: it hinders the correction of macroeconomic imbalances through the adjustment of relative prices; it can prompt consumers to postpone purchases, especially of durable goods; it can affect the cost of capital thus deterring capital formation; and it makes debt service more onerous.