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).
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 likelyhood 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%.
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 these Keynesian-trained fools cannot see it.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com