European Inflation

EU-28 and EA-19 HCPI

Deflation returned once more to Europe as both the EU (EU 28) and the euro area (EA 19) experienced a fall in the average level of prices, down by 0.2% in both areas.

Inflation EU and EA monthly | amCharts

With existing interest rates at record lows, and with significant assets purchasing already in the system, Europe's monetary policy strategy remains a cause for concern.

At the most recent ECB meeting (March 10th 2016) it was agreed that the interest rate on its main refinancing operations (MRO) - the open market operation that provides weekly liquidity into the Eurosystem - would be decreased by 5 basis points to 0.00% - with rates on the marginal lending facility falling to 0.25%, and to -0.40% on the deposit facility - with effect from 16 March 2016.

In addition, the ECB is set to increase QE (formally called APP - asset purchase programme) in the light of the weakening outlook for the global economy, and uncertainty concerning the possibility of the UK's exit from the EU ('Brexit'). Under its APP, combined monthly purchases of €80 billion assets will start in April 2016. This will be acccompanied by the launch of a new series of four targeted longer-term refinancing operations, starting in June 2016. 

The Eurosystem

The Eurosystem offers credit institutions two standing facilities:

  1.  Marginal lending facility in order to obtain overnight liquidity from the central bank, against the presentation of sufficient eligible assets
  2.  Deposit facility in order to make overnight deposits with the central bank.

See also:

EU quantitative easing

EU monetary policy