Eurozone: Inflation plunge to 0.4% in July may trigger cataclysmic developments

Press conference by Siim Kallas, Vice-President of the European Commission, on the spring 2014 economic forecasts. (EC Audiovisual Services, 05/05/2014).

Press conference by Siim Kallas, Vice-President of the European Commission, on the spring 2014 economic forecasts. (EC Audiovisual Services, 05/05/2014).

With inflation in Eurozone falling last month to crisis level nadir and a new business investments retreat, it is easily understandable why unemployment is still exploding at double-digit highs. As a matter of fact, at the end of last month Eurostat, the EU statistical service published its estimates for the above mentioned crucial variables, which measure and underscore the immediate threats to euro area economy. It may be true that the European Central Bank has undertaken a new program to support the real economy and the SMEs, promising up to one euro trillion in liquidity injections, but this will take months if not years to give any tangible results. In the between the economy, at least in many member states, may well cross the line, from recession to the high risk area. Let’s take one thing at a time, starting with inflation.

On Thursday 31 July, Eurostat publicised its first estimate for the same month inflation rate. The relevant passage of the Press release issued by the EU statistical office read like this, “Euro area annual inflation is expected to be 0.4% in July 2014, down from 0.5% in June, according to a flash estimate from Eurostat, the statistical office of the European Union. Looking at the main components of euro area inflation, services is expected to have the highest annual rate in July (1.3%, stable compared with June), followed by non-energy industrial goods (0.0%, compared with -0.1% in June), food, alcohol & tobacco (-0.3%, compared with -0.2% in June) and energy (-1.0%, compared with 0.1% in June)”.

Need for some inflation

Undoubtedly, the most alarming of the new statistical figures (on inflation, unemployment and investments) posted by Eurostat on the last day of July, refers to inflation or the almost complete absence of it. For five years now, after the breakout of the still ranging credit crisis, the world economy learned to appreciate the existence of some inflation pressures. On the contrary, until the turn of the Millennium, price rises of double rates were the standard problem. Economists and the business community had then almost forgotten the disinflation (barely rising or stagnant prices) and deflation (falling prices) risks.

It took the credit crunch and the subsequent real economy downturn for everybody to acknowledge that Europe suffers from falling inflation. Not to forget that disinflation is haunting mainly the European economy, while in the US consumer price developments pose no problems. As for the developing world, inflation pressures are still a problem but not a major one, probably at the exception of Argentina, where annual rates of price hikes stretch up to 54%. Understandably, the reason for this Eurozone solitary path to deflation is the restrictive fiscal policies, the incomes austerity and the denial of the ECB to apply quantitative easing in its monetary strategy. As everybody knows, Germany is the main force behind this deflationary policy mix.

Looking for a new dogma

Clearly this Teutonic dogma has led the unemployment rates to double-digit levels, haunting more than half Eurozone countries. The sociopolitical repercussions of the unseen before jobless numbers are already at the point of crossing to the area of no return. Extremists in both ends of the political spectrum and Eurosceptic groups have gained importance and weight. They now substantively threaten the internal stability and the international position of large and important countries like France, Italy, Spain, Greece, Portugal and many others.

Also on Thursday 31 July, Eurostat announced its estimate of the unemployment rate. The germane passage is the following: “The euro area (EA18) seasonally-adjusted unemployment rate was 11.5% in June 2014, down from 11.6% in May 2014, and from 12% in June 2013. This is the lowest rate recorded since September 2012. The EU28 unemployment rate was 10.2% in June 2014, down from 10.3% in May 20144, and from 10.9% in June 2013. This is the lowest rate recorded since March 2012. These figures are published by Eurostat, the statistical office of the European Union”.

Unemployment always a threat

The good people of Eurostat note that those rates are the lowest recorded since 2012. From their point of view, being accomplished statisticians and mathematicians, this observation may be true. Yes, June unemployment rate was one decimal point below May, making it the lowest rate of the last two years. In real life though what is mathematically correct may be of no significance at all. One percentage point less unemployment, even if it is 100% accurately estimated, has no macroeconomic or political meaning. The truth remains that “In June 2014, 5.129 million young persons (under 25) were unemployed in the EU28, of whom 3.319 million were in the euro area”. Unfortunately, the economic and political implications of this fact can’t be expected to become more lenient, after a decimal reduction of the unemployment rate.

A drop in investments

Last but not least, more bad news stems from the business investment front. The same source reveals that “In the first quarter of 2014, the business investment rate was 19.3% in the euro area, compared with 19.5% in the fourth quarter of 2013. This fall was the result of investment decreasing (-0.8%) and gross value added increasing (+0.2%). Total stocks (materials, supplies and finished goods) fell for the second quarter in a row”.

In this case the net fall was not just one decimal point but nearly an entire percentage unit. Manifestly, investments decreased by 0.8% during the first quarter of this year in relation to the three last months of 2013. This is not a trivial thing. This fall of investments is of a great significance, with important implications for employment. Todays’ investments are the future work positions, which will be obviously reduced. This fact can thus supply a good base to predict a new increase of unemployment during the coming months.

Alarming statistics

During the past four to five years Eurostat keeps producing alarming statistics. This time however, the announcement of a new drop of inflation rate to 0.4% in July from 0.5% in June has an extra weight. It strengthens the argument that Eurozone may end up in the deflation part of the graph. Alas, if it comes to this, the cost of reversing the catastrophic sequence may be unbearable. Hence Eurozone decision makers must be proactive and do whatever it takes to save Europe from this dreadful eventuality.

 

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

Can one FTA and 110 lobby meetings make the dirty oil clean in Europe?

Statistics show the ugly face of youth training schemes

Execution of juvenile offender in Iran ‘deeply distressing’ – UN rights chief

Seaweed, enzymes and compostable cups: Can ‘Big Food’ take on plastic and win?

Giving humanitarian help to migrants should not be a crime, according to the EP

Digital Single Market: New EU rules for online subscription services

Draghi’s ‘quasi’ announcement of a new era of more and cheaper money

Road injuries leading cause of death for the young, despite safety gains: UN report

2019 EU Budget: Commission proposes a budget focused on continuity and delivery – for growth, solidarity, security

China repels EU allegations of export subsidies

Women ‘vital’ to peace efforts and ensuring long-lasting stability in Afghanistan

5G mobile is nearly here – but we should share networks to make it affordable

45th Anniversary of the French Confederation (Confédération Nationale des Junior Entreprises)

Egyptian death sentences a ‘gross miscarriage of justice’: UN human rights chief

European Union: Retail sales show deep recession

Europe to turn the Hamburg G20 Summit into a battlefield

Public health through universal health coverage can help to attain many SDGs

Internet milestone reached, as more than 50 per cent go online: UN telecoms agency

The scary EU elections result and the delayed Council’s repentance

“InvestEU”: MEPs support new programme to boost financing for jobs and growth

How can we produce enough protein to feed 10 billion people?

Why the ocean holds the key to sustainable development

Adolescent health has been overlooked for too long

How we can work together in the fight against NCDs

Why Sweden’s cashless society is no longer a utopia

European Parliament speaks out against “killer robots”

Ship Recycling is the Commission’s Titanic

Afghanistan: UN ‘unequivocally condemns’ attack in Kabul

ISIL’s ‘legacy of terror’ in Iraq: UN verifies over 200 mass graves

COP21 Breaking News_10 December: UN Climate Chief Calls for Final Push to Meet Adaptation Fund Goal Very Close to Target

The Ecofin deceives the SMEs with the EIB €10bn capital increase

Solitary Britain sides with US aggressing Russia and chooses hard Brexit

Will the Greek economy ever come back to growth?

Ukraine’s new political order not accepted in Crimea

What will Germany look like after the next election?

MEPs wants to increase research funding to €120 billion in 2021-2027

“None of our member states has the dimension to compete with China and the US, not even Germany!”, Head of EUREKA Pedro Nunes on another Sting Exclusive

Ethiopia will soon introduce visa-free travel for all Africans

Rich economies not a promise of education equality, new report finds

In Tanzania visit, UNHCR official stresses freedom of choice is crucial for refugee returns

Impacting society with digital ingenuity – World Summit Award proclaiming the top 8 worldwide

Tougher defence tools against unfair imports to protect EU jobs and industry

ECB’s €1.14 trillion again unifies Eurozone; Germany approves sovereign debt risks to be pooled

EU and China resolve amicably solar panel trade dispute

Germany and OSCE support an east-west dialogue in Ukraine without exclusions

Fair completion rules and the law of gravity don’t apply to banks

Why the ECB prepares to flood the markets with more and free of charge euro; everybody needs that now

EU officially launches its first naval mission against migrant smugglers

Trust is at breaking point. It’s time to rebuild it

The fatal consequences of troika’s blind austerity policy

Online platforms: improving transparency and fairness for EU businesses

Climate negotiations on the road to a strong Paris agreement rulebook

Western Balkans: European Parliament takes stock of 2018 progress

Consultant in Forensic Technology – 1969

‘Immense’ needs of migrants making perilous journey between Yemen and Horn of Africa prompts $45 million UN migration agency appeal

Beware the fragility of the global economy

A Sting Exclusive live from Brussels: Solheim’s consequential visit leading the world and the UN

“We always honor our words, and in that respect we expect our partners to honor their words as well”, China’s State Councillor and Foreign Minister Wang Yi highlights live from Brussels

Minsk “ceasefire” leaves more doubts than safety, with EU already planning steps further

UNIDO promotes post-harvest excellence for mangoes in the Mekong River Delta of Viet Nam

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s