August 11, 2015

HOW DO YOU DISPELL INFLATION WHEN EVERYTHING IS GETTING CHEAPER TO PRODUCE?:

Deflation Stalks the Euro Zone (Mark Gilbert, 8/11/15, Bloomberg View)


The economist Paul Krugman has argued that even though deflation -- commonly defined as a sustained period of falling prices -- is relatively rare, a "price stability trap" can fool central banks into thinking all is well just because prices aren't actually declining:

As the inflation rate goes toward zero, it seems to become 'sticky': In the modern world, rapid deflation doesn't happen, and in fact slight positive inflation often persists in the face of an obviously depressed economy.

Consumer price gains have averaged just 0.1 percent so far this year in the euro bloc, and July saw a gain of just 0.2 percent after the first three months of the year all posted price declines. So while Friday's growth figures will show the euro region has successfully dragged itself out of recession, the inflation backdrop suggests there's still work to be done to dispel the threat of deflation.

Posted by at August 11, 2015 8:11 PM
  

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