The European Commission on Monday (5 May) revised downwards its inflation forecasts for the eurozone economy in 2014, although it predicted that lower levels of inflation would not affect economic growth in the short term.

The Commission downgraded its inflation forecast for 2014 from 1%, which was its prediction in February, to 0.8% – well below the European Central Bank’s (ECB) target of “below, but close to, 2%”. The ECB’s governing council meets today (8 May) in Brussels for its monthly rate-setting meeting.

There is widespread concern, in particular in the south of Europe, that the low inflation in the eurozone coupled with the euro’s strength compared with other currencies is damaging the economic recovery in the single currency area. Michel Sapin, France’s minister of finance, joined the ranks of politicians expressing reservations about the strength of the euro, saying on Monday that it was hampering growth. Representatives of the German and Dutch governments retorted that exchange rates were not a matter for politicians.

Siim Kallas, the European commissioner for transport who is standing in for Olli Rehn, as commissioner for economic and monetary affairs, said earlier that evening that the “long-term appreciation [of the euro] was not welcome”. But there were few tools available to influence the exchange rate, he said. Increased investment in the eurozone and a burgeoning trade surplus were responsible for the euro’s strength, he said.

Kallas also sought to play down concerns over the eurozone’s anaemic inflation. He pointed out that inflation was low in the Union’s main trading partners, including China and the US, and, in the case of the EU, this could be attributed to low food prices and economic reforms.

According to the Commission, several eurozone members will experience at least one quarter of zero inflation or even negative inflation, known as deflation. But Kallas clarified that the Commission considered that “the risk of outright deflation […] is low”.

The Organisation for Economic Co-operation and Development on Tuesday (6 May) called on the ECB to cut interest rates further to combat low inflation, which would mean some interest rates going negative.

Nicholas Hirst