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ECB increasingly concerned about drop in EZ inflation expectations

FXStreet (Bali) - The sharp decline in price levels throughout Europe are causing inflation expectations to gradually be revised lower, a development that is posing some challenges for the European Central Bank.

Amid the drop in financial market's CPI prospects in the Eurozone, late on Friday, ECB's President Mario Draghi said the bank “will acknowledge these developments”, a statement that, as the Financial Times notes, "is likely to fuel speculation it will take bolder action against deflation threats."

From the FT: "The most closely watched measure of markets’ eurozone inflation expectations – the average rate expected over five years starting in five years' time – fell to 1.95 per cent on Friday, according to Barclays. Similar levels have not been seen since the eurozone debt crisis was at its most intense. At the start of August the measure stood at 2.11 per cent."

“If we go to shorter and medium term horizons, the revisions have been even more significant. The ECB would use all the available instruments needed to ensure price stability over the medium term”, Draghi added.

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