Home > Uncategorized > Why isn’t inflation lower, nowadays (common sense edition)

Why isn’t inflation lower, nowadays (common sense edition)

At this moment, there is quite some talk about the question why (European) inflation isn’t any lower, considering the crisis. Three remarks:

Inflation

Source: Eurostat. The graph does not show the HICP consumption price indicator but the superior national accounts consumption price indicator (which is slightly less volatile than the HICP indicator).

(A) GDP inflation (which does not only show the development of consumer prices but also those of investment prices, government expenditure etcetera) after 2008 was about 1% a year lower than before 2008 which makes for a cumulative difference of about 4%, by now. This surely is not yet deflation – but it is a sizeable difference, which is also larger than the difference between consumer price inflation before and after 2008.

(B) Unemployment in the entire Eurozone shows a relentless increase and has crossed the ‘hyper-unemployment’ threshold (more on this tomorrow). Unemployment in the largest economy of the Eurozone, Germany, has however actually gone down while unemployment in its second most important economy, France, has been fairly steady and is only quite recently showing signs of alarming increases. If these two economies act as a kind of price leaders, little decline of inflation was to be expected.

(C). But as the ‘core’ economies too are, by now, increasingly hit by austerity, a further decline in ‘domestic’ inflation, i.e. excluding imported products, is to be expected.

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: