Deflation Soon to Grab Attention in the European Union

Elliott Wave International's European Financial Forecast believes so. The January 2013 issue noted that although "the Continent's inflationary experience of the 1970s and early 1980s has produced a critical lack of respect for deflation," deflation will soon have the European Union's undivided attention.

The next month's issue in February provided more insight:

The European Financial Forecast began this year by pointing to Germany's deflationary meltdown from 1928 to 1932 as the best historical example of the psychology that is engulfing Europe now. The early 1930s remain Europe's greatest precedent of what deflation looks like, but the closest model for the future is Japan, where the trend is running at least a decade ahead of Europe.

-- The European Financial Forecast, February 2013

Now we learn that inflation in the eurozone just fell to 0.7%, the lowest figure since November 2009.

The Financial Times noted on November 5 that the October 0.7% figure is "well below the European Central Bank's target of just under 2% and does indeed raise the possibility of Japanese-style deflation." The eurozone's inflation rate was 1.6% as recently as July.

As you probably know, Japan has been mired in a deflationary trend for more than 20 years.