Governments win fight against inflation

Date: 29/02/1996

INFLATION in Europe has been beaten - at least for the time being.

When the European Commission's services publish their next economic report on 14 May, sources suggest they will make a “very small revision downwards” in their 1996 inflation forecast of 3&percent;.

“Inflation can always come back but, for now, it is not a problem,” said one official.

The services have just begun to revise their November forecasts to take account of the recent slowdown of the European economy and recent major revisions in German figures.

However, Economics Commissioner Yves-Thibault de Silguy gave advance notice of one key figure this week when he revealed the Commission's estimate for 1996 growth would be scaled back to below 2&percent; from the 2.6&percent; anticipated in November. This, the Commission admits, is likely to widen budget deficits, particularly if governments spend more to compensate for the downturn.

“This depends on the behaviour of national governments but, in principle, slower growth means automatically higher deficits,” said an official.