Deflation risk in the euro area and central bank credibility

We analyze a new option-based indicator of market perceptions of euro area deflation risks. We find that during 2010–2015, long-term deflation risks became slightly more sensitive to oil price changes and inflation surprises, suggesting a subtle weakening in anchoring. •We use a novel dataset on perceived deflation risk using options on forward inflation swaps.•Market perceptions of deflation risk in the euro area evolved during the period 2010–2015.•Longer-term deflation risks became more sensitive to changes in oil prices and inflation surprises.•The anchoring properties of euro area inflation expectations may have subtly weakened.