Mr. Singer said that the weak-koruna policy has persuaded Czechs that the central bank won’t allow consumer prices to fall, and removed the risk of a slide into a prolonged period of deflation. Central bankers aren’t worried so much about falling prices as about the threat that consumers and businesses will come to expect prices to continue to fall and will postpones their purchases, weakening economic growth and pushing prices down further. “We were afraid of this problem of postponed consumption and investment,” Mr. Singer said. “But people have realized the central bank is not going to allow a deflationary slide.”  BIS central bankers’ speeches  1  Mr. Singer said that retail sales are picking up, driven by higher auto sales, an indication that consumers aren’t postponing purchases in the expectation goods will be cheaper in the future. He cited a decline in the savings rate as another indication that the risk of deflation has been lessened. The central-bank chief said that while food prices may rise at a slower pace in response to a good harvest, he was not worried about that development because people can’t postpone food purchases. Measured according to an EU standard, the annual rate of inflation in the Czech Republic picked up to 0.7% in August from 0.6% in July, and Mr. Singer said he is confident it will rise to the 2.0% midpoint of the central bank’s target range next year, assuming the eurozone follows a “baseline scenario” of a return to modest growth.
In this respect, we do not think there is any risk of deflation in the euro area, or inflation for that matter. Furthermore, the United States may be substantially below its long-term growth potential, whereas the euro area is relatively close. Le Figaro – Nonetheless, the dollar is sliding and we seem to be moving away from the close cooperation seen between central banks during the crisis... Christian Noyer – First, everything does not come down to the dollar. For example, there are emerging countries that, by not being sufficiently flexible in their exchange rate policy, have monetary policies that are inappropriate and create risks to inflation and growth. Moreover, while each central bank is pursuing a policy appropriate to its country’s situation, nobody wants to move away from the goal of consistency. We are all committed to ensure a framework for balanced growth, and that commitment remains just as strong. As reiterated at the last meeting of G20 finance ministers and central bank Governors, no one should or can manipulate their currency. Le Figaro – Is the euro not the real victim of recent foreign exchange developments? Christian Noyer – The euro is not the only currency that floats against all other currencies. Let’s not be so self-centred! The idea that the euro is arguably the adjustment variable for the rest of the world seems strange to me. Le Figaro – Will the G20 be able to make headway on monetary policy issues given that the climate is, to say the least, tense?