Low Inflation and Deflation in EU Countries Outside the Euro Area

Abstract:

Falling world prices of food and energy are the main explanatory factor behind disinflation in EU countries outside the euro zone, including Sweden. Disinflationary spillovers from the euro area is an important factor as well.

In this publication, the authors analyse disinflation in EU countries outside the euro zone.

When faced with prolonged disinflationary pressures, the authors suggest that central banks should aim at bringing inflation closer to its target, paying particular attention to signs of overshooting of inflation expectations. But, with policy rates at historical lows, further easing by inflation-targeting central banks would need to take into account the impact on financial stability.