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Falling prices have become a threat to the 19-country euro zone
as inflation has slowed to a virtual halt. A price dip could
hurt the economy further if consumers delayed shopping in the
hope that cars, for instance, will get cheaper still.
On Friday, the ECB published research showing another
consequence of such a fall in prices - the uneven impact on the
wealth of people and countries, depending in part on how much
they have borrowed.
"Surprise inflation or deflation give rise to wealth
redistribution," the report's authors wrote.
Falling prices make the burden of debt heavier as it becomes
harder over time to repay the nominal amount, as money
effectively loses its value and wages slow. Those who have lent,
however, see the opposite.
The report singled out young households as particularly
vulnerable, while richer people, with less debt, were the
winners.
"Older and richer households ... tend to be the predominant
winners of unexpected deflation, while young middle class
households, which tend to borrow to purchase homes, tend to be
the predominant losers," the report said.
The study pointed to Greece, Italy, Portugal and Spain as the
'largest net losers' from a price dip, while Belgium, on the
other hand, gained.
The ECB is printing tens of billions of euros each month, buying
chiefly government bonds, to buoy prices. But the impact of the
buying program has been blunted by a sharp fall in the price of
oil.
(Reporting By John O'Donnell; Editing by Hugh Lawson)
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