„Rzeczpospolita” published an article by Maciej Stańczuk, Vice President and Head Economist of the Employers of Poland, in which he presents his views on the positive and negative aspects of deflation and the influence of raising base rates on the European economy.
Maciej Stańczuk explains that the probability of deflation in Europe is quite high. Even more so because in Q1 inflation was lower than forecasted by the European Central Bank (EBC).
He adds that according to most economists keeping prices low may in the long run block economic growth. As a result consumers postpone purchases waiting for a further drop in prices. Companies have difficulty selling their products due to low demand but they still need to bear high labour costs.
According to the Head Economist of the Employers of Poland deflation and its consequences are often exaggerated and improperly interpreted. He points out that it is not clear whether the increase in monetary base that has been observed in USA and Europe in recent years helps to head off the threat of deflation or rather causes another risk such as speculative balloons in the assets market (real estate).
The whole article available in Polish: