ECB suffers difficult reflation task with more than half the countries in deflation

You don’t want to be sitting in the seat of European Central Bank (ECB) chief Mario Draghi, who faces one of the difficult reflationary task ahead of him. At one hand he is suffering sharp criticism from the likes of Wolfgang Schäuble, German finance minister for the ultra-easy monetary policy the bank is pursuing on the other hand its policies so far hasn’t sparked inflation, though it may have trimmed deterioration.

According to latest report released, 10 out of 19 Euro Zone countries are in deflation, two more are at the brink of deflation. Cyprus is suffering worst, with prices declining-2.2% annually. Euro Zone’s fourth largest member Spain also recorded -1% annual inflation. Second biggest France and third biggest Italy, both are in deflationary territory.

Moreover thanks to ECB’s easing, another risk have brewed up. After gobbling up sovereign debts and corporate securities, Euro Zone banks are now more integrated to risk than ever. Should a crisis like 2011/12 to erupt again, market reaction can turn out much more violent than prior. Some central bankers like FED are right to worry on their toolbox.

To add to the woe, Euro defied ECB’s last easing by gaining against Dollar. Currently trading at 1.127.