You can have too much of a good thing, including low inflation. Very low inflation may benefit important segments of the population, notably net savers. But in the current context of widespread indebtedness problems, it is working to the detriment of recovery in the euro area, especially in the more fragile countries, where it is thwarting efforts to reduce debt, regain competitiveness and tackle unemployment. The ECB must be sure that policies are equal to the tasks of reversing the downward drift in inflation and forestalling the risk of a slide into deflation. It should thus consider further cuts in the policy rate and, more importantly, look for ways to substantially increase its balance sheet, be it through targeted LTROs or quantitative easing (public and private asset purchases).

http://blog-imfdirect.imf.org/2014/03/04/euro-area-deflation-versus-lowflation/

http://blog-imfdirect.imf.org/2015/02/02/disinflation-in-eu-countries-outside-the-eurozone/

Disinflation (the delay of consumer price index) isn't desirable for four main reasons:

1) Disinflation (which may convert in deflation: the drop of prices) causes a gradual drop of selling prices, so companies are forced to cut their investments because of future perspectives deterioration;

2) If companies decrease their investments, they'll suffer a profits drop; so they'll have to cut a share of their workers. In addition, buyers will postpone their purchases because they expect a new prices reduction;

3) If unemployment rates increase, goods demand will fall down and companies profits will suffer other decline. In this way, we have a vicious cyrcle which stokes itself. 

4) Creditors are favored because their "real" credits increase; asymmetrically borrowers are disadvantaged because their "real" debts grow. This is a very bad situation because borrowers  are usually companies and exposed people who are already in difficulty. Finally, a moderate inflation could simplify burden of sovereign debts (in particular for Mediterranean Countries like Italy, Spain, Portugal and Greece).

Many thanks Gaetano Perone and Perikles Karipidis

INFLATION: Inflation rate is negative territory (disinflation). At the end of January 2015, inflation int he EU is -0.6 point. This means price level is retreating into negative territory. It means that people are not spending as much or money supply is tightened. However, with low interest rate, money supply is not tightened. If price level is retreating it may mean that people may be feeling uncertain of the state of the economy---we may speculate that there is low consumer confidence about the health of the economy, i.e. better to save then to spend because we do not know what will come tomorrow.

INTEREST RATE: The European Central Bank (ECB) interest rate is at 0.05%. This is considered low in comparison to other major economies: US (0.25%), UK (0.50%); Japan (0.10%) and Russia (15% an exceptional case?). Low interest rate generally meant the policy aim is to stimulate the economy, i.e. allowing firms to borrow at low cost of capital to expand operation and create job, thus, stimulating economic growth. If this policy intent is effect, we should expect to see an increase in consumption; i.e. assuming that if low interest leads to job creation and job leads to income and income leads to consumption. If so, there might be changes in price level? in which direction?

CONSEQUENCES: What are possible consequence of low interest rate and lack of consumer confidence to spend, thus, disinflation continues? Low interest rate would mean lower demand for the Euro in the near and mid-term. This lack of confidence may lead to the losing strength of the Euro. Depending on the term of trade, if the EU is a net importer this may spell another round of slowing down and then recession. If the EU is a net export then weak currency may translate to higher export volume.

HEALTHY LEVEL OF INFLATION: A good does of inflation may help push the economy to go forward and gain momentum for growth. What is a health level of inflation? Under the Washington consensus, 2% inflation is considered healthy.

See: http://www.federalreserve.gov/faqs/economy_14400.htm

http://www.tradingeconomics.com/euro-area/inflation-cpi

http://www.global-rates.com/interest-rates/central-banks/european-central-bank/ecb-interest-rate.aspx

“Disinflation” is often confused with “deflation”. Disinflation represents a situation where inflation increases at a slower rate while deflation represents a decrease in the prices of goods & services throughout the economy. Disinflation does not usually precede a period of deflation” which is a rare phenomenon that does not occur in the course of a normal economic cycle”. However, I think that disinflation indicates that there is something wrong with the state of the economy in terms of growth or expansion & this means that the EU will need more time & effort to compete with the others while having a more advantage edge.

In terms of its consequences, it all depends on how falling inflation (now resulting in deflation) influences the price expactations. As ana example, In Poland, contrary to general (and most popular) approach, recent deflation have even boosted private demand, as falling inflation is perceived as temporary phenomenon, caused mainly by presumably short-term factors: falling fuel prices and falling food prices due Russian embargo.

Inflation is wrongly restricted to consumer price inflation. It has to be defined a little bit broader:

'Flow' inflation: consumer price inflation, fixed investment price inflation, government purchases inflation, the exchange rate, interest rates. These are all expenditure related rates of inflation. An income related rate of inflation is the increase in the wage level. A cost related item is for instance wage costs (not exactly the same was the wage level).

'Stock', i.e. asset inflation: houses, stocks, bonds

House price deflation has been characteristic for the eurozone for quite some time, just like declining interest rates (mind: an interest rate is a price). At the same time, countries have been pushed to mitigate and even lower wages (mind: a wage is a price, too). As the economy knows an output gap (consider Greece: last year the number of tourists increased with a whopping 22%, despite this prices declined...) it is not weird that consumer prices increases are getting lower.