Inflation in the euro area is measured by the Harmonized Index of Consumer Prices (HICP). “Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices for the euro area of below 2%” (the red horizontal line). The Governing Council of the ECB clarified that this target should be interpreted as “below, but close to, 2% over the medium term.” In the euro area, as in several other advanced economies, inflation was below target but above zero for about two years (see Contessi, De Pace, Li, 2014). The IMF recently defined this environment as “lowflation.”

The most recent measurements for the euro area have shown mild deflation, with year-on-year inflation rates slightly below zero. Most recently, low inflation rates across many countries have been due to a combination of economic slack in the global economy and low oil prices. The weak economic conditions in the euro area are an additional factor pushing its inflation rates even lower.

How this graph was created: Search for “Harmonized CPI,” and the series shown here should appear first in the list. Change units to “Percent Change from Year Ago.” To add the red horizontal line, use the new feature in FRED to create a user-defined line: Open the “ADD DATA SERIES” panel, select “Trend Line,” and change both the start and end values to 2.

Suggested by Silvio Contessi.