Eurozone stuck in a high risk deflation area; Draghi expects further price plunge

Jyrki Katainen, European commissioner in charge of Economic and Monetary Affairs and the Euro speaks at the plenary session of the European Parliament in Strasbourg about resource efficiency in the EU (Copyright: © European Union 2015 EP).

Jyrki Katainen, European commissioner in charge of Economic and Monetary Affairs and the Euro speaks at the plenary session of the European Parliament in Strasbourg about resource efficiency in the EU (Copyright: © European Union 2015 EP).

This newspaper has been following very closely the Eurostat statistics, including inflation, which paint an accurate picture of Eurozone’s economic condition. Then, not without good reason, during the last few months or even years the European Sting didn’t share the reserved optimism of Brussels about euro area’s prospects and unfortunately Eurostat confirmed this prediction once more. Last Wednesday EU’s statistical service published its flash estimate for September inflation anticipated to have returned to the negative part of the chart at -0.1%. There is more in it though.

Last Friday Eurostat also published its estimate about industrial producer prices found to have dived in August deeply in the negative area with a -0.8% reading. This crucial statistic was again in the negative area during the past difficult years. Throughout the hard winter of 2014-2015 domestic producer prices in manufacturing kept falling for many months in a row.

A dreadful descent of prices

This tendency culminated in December 2014 with a -1.2% reading, hopefully marking the end of the bad times. Since February 2015 this key statistic evolved rather positively for a few months possibly fuelling encouraging thoughts in Brussels. Unfortunately, it turned  negative again in June 2015 with a narrow fall of -0.1%, but this new unfavorable development continued in July with a drop of -0.3% and, as mentioned above, in August with a -0.8%. The deterioration tendency is easy to observe.

Let’s return to the headline consumer price inflation. Understandably, Eurostat’s flash estimate for September is dragged below the zero line by the deep fall of the price of energy. The statistical service says that in September the sub categories of consumer goods prices evolved as follows: Processed food, alcohol & tobacco 0.6%, non energy industrial goods 0.3%, energy -8.9% and services 1.3%. Obviously the energy items have hauled the overall consumer goods inflation to the negative area.

It’s not only energy

This fact has been used by many policy makers and analysts to argue that the Eurozone doesn’t really run any deflation (negative inflation) danger. The idea is that energy is by and large an exogenous factor for the euro area economy, while its proper endogenous price structure is safely anchored in the positive part of the chart. Exactly at this point though a very structural statistic enters in the equation and makes things not so staightforward. This is the domestic industrial producer price index.

Domestic industrial producer prices have a long negative record to show as described above. Despite the fact that cheaper energy inputs may allow domestic industrial producers to sell their products at lower prices, the truth remains that their share in the income distribution shrinks. This is done to the benefit of other sectors, like the services. These other sectors of the economy favored by continuous increases of their selling prices keep gaining an increasing part of the gross domestic income, to the detriment of industry while the overall picture remains deflationary. There is nothing positive in this arrangement especially for the core of the Eurozone economy which undoubtedly is the manufacturing sector.

It’s the industry stupid

As things stand now over the last few months Eurozone entered again in the danger area on both accounts. Both the headline inflation became negative and the domestic producer prices in manufacturing kept falling for many months in a row. And this flagrant deterioration occurred despite the fact that the European Central Bank has injected more than €600 billion into the economy in applying its extraordinary monetary measures (on 25 September 2015 the amount of securities held by the ECB for monetary policy purposes stood at €631bn ).

In short, Eurozone is still in the high risk deflation area, while the latest free money allocation to the banking sector by the ECB (hundreds of billions of it) doesn’t seem to make a difference. The banks continue playing a negative role as during the past years. Even the President of ECB Mario Draghi seemed quite alarmed when he plainly stated on 3 September, “We may see negative numbers of inflation in the coming months”.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

What next after more sanctions against Russia, will the Ukrainian civil war end?

Further reforms needed for a stronger and more integrated Europe

EUREKA @ European Business Summit 2014: Innovation across borders – mobilising national R&D funds for transnational innovation in Europe

What is the IMF telling Eurozone about fiscal and banking unification?

A day in the life of a refugee: We should be someone who helps

Parliament votes reform for better European Co2 market but critics want it sooner than later

How technology is driving a fourth wave of environmentalism

EU’s core members are eyeing larger parts of arms trade and of world map

A Trumpist squad shook Davos and the world

The Changing Scope of International Economic Relations – Chinese Leadership in the 21st Century

Innovations for Content Professionals at the DCX exhibition 2018 in Berlin, in association with The European Sting

Financial transactions tax gets go ahead

The Brits are not an exception and that’s why they voted to leave

A Sting Exclusive: EU Commissioner Mimica looks at how the private sector can better deliver for international development

EU citizens disenchanted with Economic and Monetary Union over rising poverty and high unemployment

Two major EU projects falter; the Schengen Agreement now freezes and Eurozone fails to resolve the Greek enigma

EU out to conquer African Union summit

Medschool 4.0: how to succeed in the smart revolution of healthcare

On Brexit: the outcome of UK elections next May to be based on false promises?

How can education empower youth to become tomorrow’s leaders

Commission and ECB prepare new financial mega-tool in support of SMEs

Innovation for a smarter world: ITU Telecom World 2018

Chart of the day: This is what violence does to a nation’s GDP

Is the advent of nationalism to destroy economic neo-liberalism?

EU-India summit: Will the EU manage to sign a free trade agreement with India before Britain?

Recognizing, protecting and empowering youth rights in Europe and the world

MWC 2016 LIVE: Industry looks to reduce mobile gender gap

EU’s Mogherini visits Turkey “to step up engagement” and highlight interests

Supermarket supply chains are driving poverty and inequality. We can do better

Theresa May’s global Britain against Philip Hammond’s Brexit fog

The eighth round of TTIP negotiations concludes in Brussels amid scepticism and new fears

The energy industry is changing. Are governments switched on?

A geared turbofan at Pratt & Whitney's production hub in West Palm Beach (copyright: Pratt & Whitney - a UTC Company- 2018; Source: Pratt & Whitney's website, media center)

The EU Commission approves UTC’s acquisition of Rockwell Collins under conditions

The MWC14 Sting Special Edition

European Commission and four online marketplaces sign a Product Safety Pledge to remove dangerous products

Why is Merkel’s Germany so liberal with the refugees? Did the last elections change that?

David Cameron’s formal letter/threat that officially opens pandora’s box for the UK

The EU bows to Turkey in view of the talks for a political settlement in Syria

Japan initiates WTO dispute complaint against Korean duties on steel

IMF’s Lagarde: Ukraine must fight corruption

Trade deals’ pure realism: it may take 10 years for a post-Brexit agreement

Gender Equality as a platform to improve Medicine

Why we are using these custom-built drones to collect whale snot

The new EU “fiscal compact” an intimidation for all people

Russia to cut gas supplies again: can the EU get back to growth without a solid energy market?

Air pollution could be responsible for 1 in 7 new cases of diabetes

ECB settles the bank resolution issue, makes banking union tangible

MWC 2016 LIVE: Qualcomm looks to pick up Hamilton’s winning ways

EUREKA @ European Business Summit 2014: A European patent system can help European businesses lead industrial research and innovation on a global scale

UN chief condemns attack targeting international forces in northern Mali

EU Migrant Crisis: Italian Coast Guard Headquarters and Italian Navy to give host national opening addresses at Border Security 2016 in Rome

Building an Inclusive ICT Innovation Ecosystem

JADE Spring Meeting 2016 highlights

EU Commission: a rise in wages and salaries may help create more jobs

China Unlimited: the dragon’s long and winding road

IMF: European banks do not perform their duty to real economy

Security Union: political agreement on strengthened Schengen Information System

FEATURE: Niger’s girls find sanctuary in fistula treatment centres

European Youth Capital 2018 : Cascais

Inflation down to 0.7%, unemployment up at 12.2%: Bad omens for Eurozone

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