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Feel a little deflated? Don't worry, so does Europe

April 1st, 2016 5:05 PM

By Southern Star Team

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I RECALL being asked to sleep alone on an inflatable mattress in the front room of a German lady I was wooing many moons ago (it wasn’t going well) and slowly hearing the air hissing out during the night until my rear end hit the floor. 

Ironic, I know. She had thoughtfully left the air pump out for me to pump it up. Her name was Angela.

We all have days when we feel a little down, for no apparent reason, a little deflated. 

The sun doesn’t shine as brightly, your better half saying ‘good morning’ is irritating and no-one seems to be able to drive a car properly. Should probably stay at home.

Economic deflation, however, is a different matter, or so we are being told. To those of us in Ireland and Western Europe it’s a relatively new concept. We have been used to inflation for so long, decades even, that no-one is even talking about it. Inflation means prices rise, so every year things get that little bit dearer and wages increase to meet those costs. Normal.

However, ‘there is a tide in the affairs of men, which, taken at the flood, leads on to fortune’, and sure enough something almost unnoticeable is taking place. Prices are falling. I have been thinking this for over a year now. Energy prices have dropped 70% in 18 months and that has led to much cheaper costs of production worldwide. Clothes, food, petrol, flights and lots of domestic goods have all fallen in price. Companies are making more profits.

On a longer timescale, China has managed to substantially reduce the costs of many industrial and domestic goods over the last 20 years and remains a major source of cheap goods for western markets. Must be good news then for all us hard-pressed consumers, just getting over the last crash?

Apparently not. Deflation is scaring the pants off Draghi and his cohorts in Europe. If everything is getting cheaper, the theory goes, we postpone purchases until prices go down, GDP flattens out and economies get a bit, you’ve got it, deflated. Our bums have hit the floor.

 

•Owen O’Brien is a lecturer and entrepreneur in residence at the School of Economics, University College Cork. See: www.owenobrien.com

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