Expert Commentary

Greek Deflation as Fast as the Eurozone Crisis

Consumer prices in Greece are declining at the fastest rate since the fall-out from the Eurozone crisis which kicked-off a decade ago. Greece’s annual EU-harmonized inflation was negative for the ninth straight month in December, at -2.4% on an annualized basis, from -2.1% in November. Headline consumer price inflation (CPI) was at -2.3% from -2.1% in the previous month.

This is a clear sign that deflationary forces are at work.

Just two years ago, Greece returned to the debt markets in a fanfare of optimism that its dark days of the Eurozone crisis were firmly in the past. Investors flocked to the bonds hunting for yield and in March 2019 a Greek government 10-year bond yielded 3.30%. Today the yield is a meagre 0.64%. Compare that to a yield of over 36% in 2012 when the Eurozone crisis exploded.

Greece remains the Eurozone’s most indebted nation with a public debt-to-gross domestic product (GDP) ratio hovering around 200%. Nevertheless, nobody seems to care because the European Central Bank has back stopped its, as well as other nations’, debt with its bond buying program (aka deficit financing).

Central banks are obsessed with trying to create consumer price inflation, in large part because it enables them to label consumer price deflation as an enemy. In doing so, they can then open the spigots of the printing press, finance deficits and increase the role of the state in the economy. However, increasing the money stock when GDP is stable (or falling) only results in declining money velocity which is related to subdued CPI growth.

If central banks got their heads out of the sand and just looked objectively at the data, they would realize that perhaps the best way to create consumer price inflation is to STOP printing money.


Greece CPI From 2007- January 2020