Lagarde has been warning of deflationary ogres – this analyst thinks the monsters are misunderstood
International Monetary Fund head Christine Lagarde warned of "deflationary ogres" at a speech in Washington yesterday, saying that the creatures "must be fought decisively".
But Societe Generale's Kit Juckes says that he "can't help thinking there are a few people who think ogres are misunderstood creatures, not that awful really."
This is why the Eurozone is losing the currency wars, and has an an overvalued euro, says Juckes. In fact, deflation is already very real in parts of the currency bloc's periphery.
European Central Bank (ECB) president Mario Draghi is doing little to fight, let alone slay, that ogre. Unless you count "regulary telling us that there is more the ECB can do", says Juckes.
Deflation isn't always bad news – it can be the case that you get the good kind – improvements in productivity that result in falling prices.
But in the Eurozone, we've got a nasty case of the bad type. Demand has collapsed and so therefore have rises in the price level. Of course, designing policy to suit the disparate economies of the euro area is an impossible challenge.
If Draghi does want to tackle deflation properly then he's going to need to make a proper effort at loosening policy some more.