The euro-zone risks an extended period of low inflation, International Monetary Fund chief Christine Lagarde said on Monday, urging central bankers to be ready to act to protect an incipient economic recovery.
Speaking at an economic forum in the northern Spanish city of Bilbao, Lagarde said the IMF saw low inflation in the economic bloc which could affect consumer spending, key to pulling the euro-zone out of prolonged economic weakness.
"We're saying that the potential risk is out there. We range that risk at 15-20%, which is why we recommend that central bankers guard against it and have available the tools that could respond to that in terms of monetary policy," IMF Director Lagarde said.
Euro-zone inflation is running at 0.8%, far below the European Central Bank's target of just under 2%, adding to pressure on the central bank to ease its monetary policy at its monthly meeting on Thursday.
Deflation, an extended period of falling prices, can undermine an economy as families and businesses delay spending on the chance of potential future bargains, creating low consumption and ever lower prices.
