Bank of France - Low, falling inflation increases deflation risk

MONTREAL, June 9 Mon Jun 9, 2014 9:59am EDT

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MONTREAL, June 9 (Reuters) - Bank of France Governor Christian Noyer highlighted low and falling inflation on Monday as a key problem, heightening the risk of actual deflation.

"The main challenge, of course, is low and declining inflation, with inflation expectations in the euro area drifting downward at short to medium-term horizons," Noyer, who is also a policymaker at the European Central Bank, told the economic Conference de Montreal.

"This prevents adjustments in relative prices, an important mechanism to eliminate gaps in competitiveness, and it increases the risk of outright deflation, should a negative shock occur in the future." (Reporting by Alastair Sharp; Writing by Randall Palmer in Ottawa; Editing by Chizu Nomiyama)

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