Euro zone slides deeper into deflation

[GliderGuider]

Source: CNBC

The euro zone slid further into deflation in January, underlining the case for the European Central Bank's full-blown bond-buying program, announced earlier this month.

Prices fell by 0.6 percent year-on-year in January, official flash estimates showed Friday, below the 0.5 percent-slide forecast by analysts polled by Reuters. In December, the region fell into deflation for the time since 2009, when prices fell by 0.2 percent.

The euro zone-wide figures came one day after Germany reported it had slipped into deflation. Europe's largest economy posted price falls of 0.3 percent in January, year-on-year.

January's further slide in prices was driven by an accelerating fall in energy costs, Eurostat said. Energy prices fell by a sharp 8.9 percent in January, compared with 6.3 percent in December. Prices in January for food, alcohol, tobacco and non-energy-related industrial goods also fell; only prices for services were seen rising.

Read more: http://www.cnbc.com/id/102383385

[FBaggins]

1. Price declines and deflation are not the same thing

One is the most common symptom of the other, but that's all.

[GliderGuider]

2. Deflation is essentially a contraction of the money supply

and/or a reduction in the velocity of money. Prices are a lagging indicator. That implies that "real" deflation is probably well under way in Europe.

[FBaggins]

3. Close enough

It's a contraction of the money supply (with adjustment for velocity) relative the amount of goods and services.

That implies that "real" deflation is probably well under way in Europe.

I would want to see how much of the decline is caused by commodity price declines.

[quadrature]

4. this is what happens when the economy ...

is structured like living in
an amusement park, with prices
twice as much as they are in the US.
(similar story in Japan and Europe)

when the modern world shows up
(WalMart), are prices go down,
there is trouble

[Adrahil]

5. I'd say it's more a symptom of austerity....

Most European social democracies depend upon public sector spending for a significant amount of their economic activity. Austerity is a awful approach in such an economy.

[quadrature]

6. if you are always pushing the 'stimulus button'

(fiscal or monetary policy)

if you are always trying to stimulate...
24/7/365/ year after year.

you get what we got now..(Europe)
overbuilt, overcapacity,
10% and 20% unemployment

[Adrahil]

7. Read Keynes....

Stimulate in times of recession, and withdraw stimulus in times of growth.

But austerity in times of recession or stagnant growth leads to a negative feedback loop.

[quadrature]

8. the advice from Keynes is never followed. NEVER.

Keynes is my hero.

the problem is..
the stimulus is never turned off.
that is for political reasons.
no politician wants the economy to slow down
on his watch.

[Adrahil]

9. That's why stimulus need to be specific and limited.

Fund specific finite projects.

[wordpix]

10. economic haiku?