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Fresh Evidence Confirms Europe is the Deflation Epicenter

A slew of new economic data shows Europe remains the epicenter of a developing worldwide deflationary trend:

  • Italy October EU-harmonised consumer prices confirmed in deflation territory (Reuters, Nov. 14)
  • Bulgaria annual CPI records 0.6% deflation in October (The Sofia Globe, Nov. 14)
  • Romania's deflation deepens to 0.6% y/y in September (SeeNews.com, Oct. 11)

And these are just a few headlines since October.By no means do they encapsulate the full extent of Europe's deflation threat. A few more headlines from earlier this year provide a broader perspective:

  • Spain still stuck in deflation (Financial Times, May 30)
  • Denmark sees second straight month of deflation in April (Reuters, May 10)
  • France still stuck in deflation (Financial Times, April 29)
  • Germany is back in deflation (Financial Times, April 28)
  • Poland's central bank says deflation to persist in coming months (Reuters, Feb. 3)

It's true that some data have improved in recent months for given nations, but Europe's battle with deflation is clearly expanding, despite massive stimulus efforts from the European Central Bank to tame the deflationary beast.

Also notice that even Germany -- the Continent's economic powerhouse -- has struggled with deflationary prospects, not to mention France. Nor has the United Kingdom been immune.

Review these charts and comments from EWI's European Financial Forecast:

British Economy Weakens

Economic graphs like the ones above depict the deceptive nature of the current recovery. Notice that, even as the FTSE has fully recovered its losses since the financial crisis, retail price inflation is nonexistent; business activity is dropping off; and growth in weekly earnings and real estate asking prices are falling. The pound is down, too (bottom left graph), and the only apparent bull market on the chart is consumer credit (bottom right), where growth exceeded the highs that were set just before the 2008 financial crisis.

Again, Britain's less-than-stellar economic showing is occurring despite the Bank of England's best efforts to jumpstart the nation's economy (Wall Street Journal, Aug. 4):

Bank of England Cuts Key Interest Rate to New Low
Central bank to buy government and corporate bonds in bid to stimulate economy

Regarding the bull market in consumer credit, British credit card debt reached 10-year highs in 2016. Government spending also jumped (International Business Times, Oct. 21):

UK public sector finance unexpectedly worsens in September

Remember, the very definition of deflation, according to Webster's, is a "contraction in the volume of money and credit relative to available goods."

So, the rise in Britain's consumer credit and public sector spending only make deflation that much more devastating as the trend fully matures.

It's a matter of time before a historic credit contraction makes global headlines.

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