If the European Central Bank has one monetary dragon it considers essential to slay, it is inflation.
Keeping inflation under control is the central bank’s primary legal responsibility, and as Europe struggles to overcome economic problems caused by the sovereign debt crisis, inflation has remained the bank’s primary focus.
But some economists say it has become a driving obsession that has blinded the bank to a potentially bigger threat to Europe: deflation.
The central bank’s doubters grew louder after it made a big show of taking measures to cancel out the supposed inflationary impact of the government bond purchases it began on May 10 to help keep Greece and several other euro zone countries from defaulting on their debts.
“It’s nuts: how can they be concerned about the inflationary impact of this?” said Carl B. Weinberg, chief economist of High Frequency Economics in Valhalla, N.Y. “If I were the head of the E.C.B., I would be printing money to avert the decline in the money supply.”
Many economists regard deflation as more dangerous than inflation, because it prompts consumers to delay purchases as they wait for lower prices, creating a downward spiral of lower demand and production.
Deflation is also bad for debtors like Greece, because they may have to pay back money that would be worth more than it was when they borrowed it.
Economists like Mr. Weinberg — and a few policy makers as well — are beginning to worry that a danger of deflation in Europe, similar to the one that strangled Japanese growth for most of the 1990s, is a bigger threat than inflation.
Prices fell in Ireland in April, while inflation was below 1 percent in five other euro zone countries. The problem also extends outside the euro zone.
“We all share some risks and problems in common with Japan circa 1995,” Adam S. Posen, a member of the Bank of England’s monetary policy committee, told an audience at the London School of Economics on May 2.
The United States is also at risk, Mr. Posen said, though he rated the chances of deflation there as low.
But just as Japan did in the 1990s, the European Central Bank and the United States Federal Reserve have cut interest rates close to zero while pumping huge amounts of credit into their economies. That means the two central banks would have limited policy tools left with which to combat a collapse in prices and demand.
The downward pressure on prices has its roots in the economic decline that followed the 2008 financial crisis, but Europe’s sovereign debt problems are likely to add extra impetus.
Governments, including those of Spain and Germany, are sharply reducing spending to lower their deficits, which will inevitably curb consumer demand and employment, hindering growth.
Inflation in the euro zone — the 16 countries that use the euro — rose slightly in April, to an annual rate of 1.5 percent, from 1.4 percent in March.
Declines in categories like recreation and culture, communications and vacation tour packages blunted the impact of higher transportation costs.
And so-called core inflation — which excludes energy prices and which most economists consider a better measure for policy-making purposes — declined to 0.7 percent in April from 0.8 percent in March.
By either measure, the overall rate was still well below the central bank’s target of about 2 percent.
The real challenge for policy makers will occur in the coming months and years as Spain, Greece and Portugal struggle to regain their competitiveness on international markets.
Without their own currencies to devalue, they have little choice but to cut wages and keep them well below those in countries like Germany and France.
Pay cuts and lower government spending will put downward pressure on prices. Spanish core inflation already turned negative in April.
A mild decline in prices in a few euro zone countries can be managed, economists say, but it will add to the risks of deflation.
And the central bank will face more difficulty than usual in devising a monetary policy that fits both the ailing countries and the faster-growing economies like Germany and France.
“The E.C.B. Nevertheless, Mr. Trichet has been under fire, especially from critics in Germany, ever since the central bank began the unprecedented bond purchases to halt a sell-off of Greek, Portuguese and Spanish government debt.
By buying government bonds on the open market, and being coy about how much it was spending, the bank was able to reduce the high premiums investors were demanding for debt from the weakest countries.
A continuation of the market rout would have raised the interest rates that Spain and other countries had to pay to sell new bonds, aggravating their already grave fiscal problems.
The problem was that, to buy the bonds, the bank had to expand the assets it held on its books.
So to prove that it had not stooped to printing money, the bank promised to offset the bond purchases, which totaled 26.5 billion euros ($32.6 billion as of May 24, the most recent data available), by taking in a like amount in short-term deposits from banks.
In effect, it siphoned off as much liquidity as it had added. The bond purchases were only the latest of a series of extraordinary moves that Mr. Trichet has pursued to stabilize the European banking system.
Since the beginning of the financial crisis, the central bank has been essentially keeping banks afloat by providing almost unlimited loans at 1 percent interest.
Mr. Trichet is eager to squash any doubts that such moves represent a shift in the bank’s focus on inflation, said Mr. Snower of the Kiel Institute.
“The E.C.B. is showing very clearly that its objectives have not changed.” Other economists say that scale of the bond purchases would not increase the money supply enough to pose an inflation risk. And the money supply is falling because of a decline in bank lending.
In addition, factories are operating below capacity and euro zone unemployment is at 10 percent. Extra money in the system would not create scarcities of goods or labor that could drive up prices, Mr. Weinberg of High Frequency Economics said.
“You don’t have to pay any more to get those workers to come out of unemployment,” Mr. Weinberg said.
The recent decline of the euro against the dollar could create some inflation. Oil and other commodities are priced in dollars and could become more expensive in euros. Still, few economists see prices rising.
“There is no reason to fear high inflation for the time being,” Simon Junker, a Commerzbank analyst, said in a note.
Much of Mr. Trichet’s anti-inflation stance seems aimed at mollifying Germany’s anxiety over the bank’s bond purchases.
After the purchases, Mr. Trichet gave interviews to three leading German publications, an unusually high number in such a short period.
In each case, he tried to reassure Germans on inflation and convince them that the euro is as solid as the German mark that they reluctantly gave up 11 years ago.