Tuesday, December 10, 2013

Record Deflation In Greece

Greek consumer price deflation accelerated to 2.9% in november compared with 1.9% in October and 0.4% inflation in November 2012. Consumer prices were thus 2.5% lower than in November 2011. The euro area as a whole had according to preliminary estimates inflation of 0.9% in November and 2.2% in November 2012, meaning consumer prices rose a cumulative 3.1%.

This increase in deflation will have two effects which will both contribute to a larger current account surplus (currently it is still only barely above zero) : the increase in real interest rates will induce more savings and less investments and the lowering of the relative price level will make Greece more competitive. While the effect on the current account surplus is unambiguously  to increase it the effect on growth is more ambiguous: domestic demand will be depressed further while net exports will strengthen


Blogger Roger McKinney said...

Agreed on all points but investment. Investment will proceed during deflation if businesses see opportunities. The greatest period of growth in wealth in the US tool place between 1873 and 1917, the whole of which saw mild deflation.

3:42 AM  

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