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Europe: Deflation Remains a Threat

As the Greek debt saga unfolds, parts of Europe remain plagued with weak inflation.

Highlights of just-released data (July 14) include an annual 0.4% decline in Sweden's consumer prices, and only a 0.1% year-on-year increase in the Continent's largest economy, Germany. But from May to June, Germany's consumer prices fell 0.2%.

In Britain, annual prices were flat. The inflation rate in the United Kingdom is the lowest it's been in more than 50 years (the U.K.'s inflation rate reached an all time high of 8.5% in April of 1991 and a record low of -0.10% in April of 2015).

Weak inflation continues to register despite central bank stimulus.

Here's an excerpt from a July 14 Reuters article:

Data on [July 14] underlined that central banks across the continent are making little headway in boosting inflation despite flooding their economies with cash through rock-bottom interest rates and/or outright money-printing.

At the same time, commodity prices, especially for oil, are falling on a number of factors, including an economic slowdown in China, and should feed even lower inflation over time.

"It is a worry in particular in the euro zone where you still have spare capacity," said Jennifer McKeown, senior European economist at Capital Economics in London, referring to less-than optimal production.

There is a real risk that this becomes more sustained.

Euro zone industrial production figures for May came in far lower than expected, at minus 0.4 percent compared with an expected plus 0.1 percent.

Deflation -- the sustained falling of prices -- can become an aggravated assault on economies, prompting consumers to put off purchases in search of a better price and hence bringing growth to a halt or worse.

There is no firm sign of that to date, but Tuesday's tranche of inflation reports made grim reading for those seeking to get inflation back up to the around 2 percent yearly rate that many consider healthy.

You can read the entire article by following the link below:

http://uk.reuters.com/article/2015/07/14/uk-europe-economy-idUKKCN0PO1I220150714