Euro zone: The structural factors behind the persistently low inflation

The persistently low inflation in the euro zone results from enduring structural factors that are out of monetary policy’s control: The strong competition from low-labour-cost emerging countries and the offshoring to these countries. This results in both downward pressure on wages and weak pricing power for euro-zone companies (which are unable to pass on cost rises to their prices); The practice of internal devaluations (labour cost reductions) to improve cost competitiveness in the euro-zone countries, which gives rise to a constant disinflationary bias; The high required return on corporate equity, which is obtained in part by skewing income distribution against wage earners.