The latest troubling non-inflation data out of the euro zone cries out for a response from the European Central Bank at its next policy meeting Thursday. Falling inflation shows that any thoughts of a sturdy European economic revival remain more pipe dream than reality and that further doses of monetary stimulus will be required to prevent a slide into outright deflation.
Yet even with that grim prospect staring them in the face, the economy-minders may well do nothing but continue their jaw-boning.
Economists have been warning about the rising risks of falling prices in the battered monetary union for some time. But even they had to be surprised when the first Eurostat estimate of inflation for March came in at a mere 0.5 per cent, the weakest reading since November, 2009, and down from a revised 0.7 per cent in February. That's far below the ECB's target of just below 2 per cent. What's more, a fifth euro zone member tumbled into outright deflation, as Spain joined Portugal, Greece, Cyprus and Slovakia.
Larger economies also remain vulnerable. Yet there was German central bank chief Jens Weidmann declaring as recently as Saturday that the region is not slipping into an economy-destroying cycle of deflation and warning that the ECB should not get worked up about a temporary decline in inflation linked to such cyclical factors as falling energy and food prices.
"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," Mr. Weidmann assured a Berlin conference.
"This is not to say that a protracted period of lacklustre growth will not be an issue for policy makers," added Mr. Weidmann. But he repeated the favourite German prescription for that ailment – structural reforms to make weaker euro-zone members more competitive.
He also couldn't resist reminding his audience that maintaining interest rates at rock-bottom levels for a lengthy period poses a risk to financial stability.
So we know where one heavyweight on the ECB governing council stands. And ECB president Mario Draghi has similarly stated that the euro zone is not headed toward an outright deflationary spiral. Still Mr. Draghi and other bank officials insist they stand ready to intervene with "non-standard monetary policy measures," should these prove necessary.
With its benchmark refinancing rate at a historic low of 0.25 per cent, the ECB doesn't have much manoeuvring on the interest-rate front. There has been unofficial talk of negative real interest rates to push commercial banks into more lending. But Mr. Weidmann and other hawks on the council are bound to oppose any measures designed to pump even more liquidity into a shaky financial system.
As the Japanese can attest, once deflation wraps its icy grip around an economy, dreadful things happen. Businesses and consumers stop spending, debt costs climb and things just grind to a halt.
Japan's central bank has cranked up the printing presses and the government has launched an aggressive program of fiscal stimulus to defeat the public's deflationary mentality. The result? A modest success, with nine consecutive months of higher inflation readings, amid indications that the cycle of downward price expectations is slowly fading.
Comparing the two economies, ING Bank senior economist Martin van Vliet observes that when Japan fell into its deflationary spiral, more than half the goods in the CPI basket experienced outright price declines. "The equivalent number for the euro zone today is around 20 per cent."
For now, the Europeans can probably afford to wait a bit longer before going down this painful policy road. But they better get the sandbags ready, because the flood waters are rising.