Eurozone Falls Into Deflation; ECB About to Do Something Stupid

IMG Auteur
Published : January 07th, 2015
486 words - Reading time : 1 - 1 minutes
( 1 vote, 4/5 ) , 1 commentary
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
1
comment
Our Newsletter...
Category : Opinions and Analysis

As expected, the Eurozone fell into deflation last month, but details show energy and unprocessed food are the only things in decline. Services are up 1.2%.

Please consider the Eurostat Flash Inflation Estimate for December 2014.

Euro area annual inflation is expected to be -0.2% in December 2014, down from 0.3% in November, according to a flash estimate from Eurostat, the statistical office of the European Union. This negative rate for euro area annual inflation in December is driven by a fall in energy prices (-6.3%, compared with -2.6% in November), while prices remain stable for food, alcohol & tobacco (0.0%, compared with 0.5% in November) and non-energy industrial goods (0.0%, compared with -0.1% in November). The only annual increase is expected for services (1.2%, stable compared with November).



click on chart for sharper image

Economists Howl Over Welcome Event

Economists are in shock over what should be a welcome event. Deflation is exactly what consumers need. Some say this increases the likelihood the ECB will act on January 22.

Actually, it does nothing of the kind. The ECB is already 100% certain to do something counterproductive, and odds cannot exceed 100%.

Please consider three statements in today's Financial Times article Eurozone falls into deflation for first time since October 2009.

  1. “It’s impossible for the ECB to not pull the trigger later this month,” said Carsten Brzeski, an economist at ING-DiBa. “It is more a question of how vague policy makers can be without disappointing markets.”
  2.  
  3. Anatoli Annenkov, of Société Générale, said: “The figure feeds into the game plan of launching new measures very soon. There’s no real point in waiting — inflation will fall further in the months ahead.”
  4.  
  5. James Ashley, economist at RBC Capital Markets, said that while oil prices were a factor, “the far more important question is why inflation is anywhere near 0 per cent in the first place”. “The inconvenient truth for policy makers is that, in large part, that is a reflection of the failure of policy (both fiscal and monetary),” he added. 

Challenge to Keynesians

Here's my take on why whatever the ECB does cannot and will not work: ECB Considering Three QE Options; Eight Reasons Why ECB's Plan Will Fail; Something Up Draghi's Sleeve?

As for inflation, I am still waiting for economists to respond to this: Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit".

What central bankers "ought" to fear is asset-price deflation, not routine price deflation. And the irony is that by fighting routine price-deflation that should be welcome, they create destructive asset bubbles guaranteed to pop, eventually sinking all the loans made based on inflated assets, and jeopardizing banks in the process.

It's so obvious, yet Keynesian-trained fools cannot see it.

Saying Something Stupid

In honor of the ECB about to say (and do) something stupid, I present ...



Link if video does not play: Saying Something Stupid

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
<< Previous article
Rate : Average note :4 (1 vote)
>> Next article
IMG Auteur
Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit http://www.sitkapacific.com
WebsiteSubscribe to his services
Comments closed
  All Favorites Best Rated  
"What central bankers "ought" to fear is asset-price deflation, not routine price deflation. "

Wrong again.
Deflation and inflation are purely monetary quantity matters.
Asset prices dropping means the quality of the collateral is dropping.
The loan officer might be experiencing a severe loosening of the bowels, but ...
The quality of the collateral means absolutely nothing as long as the debt is being serviced.
Falling prices means profits are falling which directly affects the ability to service debt.
Latest comment posted for this article
"What central bankers "ought" to fear is asset-price deflation, not routine price deflation. " Wrong again. Deflation and inflation are purely monetary quantity matters. Asset prices dropping means the quality of the collateral is dropping. The loan off  Read more
overtheedge - 1/8/2015 at 2:37 AM GMT
Top articles
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Take advantage of rising gold stocks
  • Subscribe to our weekly mining market briefing.
  • Receive our research reports on junior mining companies
    with the strongest potential
  • Free service, your email is safe
  • Limited offer, register now !
Go to website.