How successful is the ECB?

The president of the European Central Bank declared his victory against deflation in the Eurozone; however, how successful is the European Central Bank's monetary policy? Or the European deflation just cured itself?

The inflation rate is often related to the economic growth; once the growth rate increases, the inflation rate tends to increase as well. In addition, when a currency depreciates, the inflation rate tends to increase.

The European Central Bank's monetary policy has two parts: one is to increase its asset purchasing programme, the other is to lower the base rates. To increase asset purchasing programme will force more hot money into the markets as well as the economy. When there is more hot money in the economy, the inflation rate will inevitably increase. In addition, asset purchasing programmes will increase the prices of assets, as when the demand for assets increases, the prices will increase, if the supply is stable. To lower the base rates is to lower the costs of borrowing and increase the opportunity cost of saving. This will encourage more investment and more consumption.

However, I think that the European Central Bank's many policies benefit the financial markets much more than the ordinary markets and the economy, may increase the wealth gap in Europe. As the asset purchasing programme and the base rate reduction directly influence the financial market, the financial market will be benefited more than other sectors of the economy. However, the inflation rate is usually unrelated to the prices in the financial market. The financial market is in the boom, but the general inflation rate did not increase previously.

Overall, the monetary policies of the European Central Bank directly influence the financial market, it does not necessarily influence the prices in the ordinary markets. Of course, people can argue there is a time lag for the impacts on the financial market influence the entire economy; then in this case, the European Central Bank may over-stimulate the economy, as it does not leave any time gap for its policies to take effects on the economy.