Bundesbank President plays down euro zone deflationary fears

FXStreet (Bali) - According to Bundesbank President Jens Weidmann, via Reuters, the euro zone is not in a deflationary cycle.

As quoted by Reuters, Weidmann said: "The euro zone is not in a deflationary cycle and the European Central Bank (ECB) should not overreact to a slowdown in inflation caused largely by cyclical factors which should prove temporary," adding that "about two thirds of the falloff in euro zone inflation could be attributed to falls in energy and food prices."

Reuters offered additional quotes from Weidmann, who said, “monetary policy should respond to such factors only in the event of second round effects”, adding that "with regard to the rate of inflation at the moment, the euro area is not in a self-enforcing downward spiral of price decreases, which is nominally the definition of deflation... this is not to say that a protracted period of lacklustre growth will not be an issue for policymakers.”

Weidmann also sent a message of caution to those ultra Euro bears out there, saying that "extremely low rates are a risk to financial stability … which may lead ultimately "in risks to price stability”, Weidmann added.