Inflation expectations in Europe have fallen off a cliff.

This summer has seen a rash of poor economic data out of the Eurozone, with the most discouraging data coming from the August 14 GDP report which showed flat growth in the second quarter.

Poor growth has also been accompanied by poor inflation data. In July, prices in the Eurozone climbed just 0.4% year-over-year, the slimmest increase since October 2009.

And as inflation and growth have both stalled, the yield on European bonds has tumbled, with German 10-year bunds trading under 1%.

This has European Central Bank President Mario Draghi facing the one thing that keeps all central bankers up at night: deflation.

Over the weekend, Draghi spoke at the Jackson Hole economic symposium.

He addressed the absolute disaster that unemployment in the Eurozone has been, but also made the case that the ECB has been somewhat limited in its ability to address the economic situation in the bloc because of austerity measures taken by European governments.

But Draghi has no direct control over European fiscal policy, and the last year has shown that the ECB is largely helpless to fight the austerity measures undertaken by so many governments in the wake of the sovereign debt crisis.

"Sovereign pressures also interrupted the homogenous transmission of monetary policy across the euro area," Draghi said. "Despite very low policy rates, the cost of capital actually rose in stressed countries in this period, meaning monetary and fiscal policy effectively tightened in tandem."

And the market has noticed.

Currently, expectations of Eurozone inflation are at their lowest levels since the depths of the financial crisis in 2009.

This chart, which comes to us from Frederik Ducrozet at Credit Agricole, is Draghi's nightmare.