Thursday, February 19, 2015

Prices are falling year on year for the first time since … – Les Echos

Prices are falling year on year for the first time since … – Les Echos

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For the first time since October 2009, that is to say, when the effects of the crisis were close to their maximum, the consumer prices have declined over the last twelve months in France. According to INSEE, they have, in fact, down 0.4% from January 2014.

Nothing as of January, the drop was 1% to December. This decline can be explained by lower prices for manufactured goods because of the winter sales. The fall is higher than that recorded in previous years at this time, but it is still unclear whether it is related to consumer caution following the attacks in the Paris region earlier in the year, or only poor economic conditions prompted traders to increase the discount. However, over one year, it is mainly energy prices have declined. The price of Brent barrel consumed in Europe, fell by over 55% between early 2014 and January 2015. The drop was not fully reflected in the sale price. The prices of petroleum products paid by households fell by 15.9% in one year. Should we then feared that France is sinking into a deflationary spiral, which will be very difficult to get out?

While the European Central Bank decided to buy assets on financial markets in order to raise expectations of rising prices, “inflation will be negative in the coming months” , warns Laurent Clavel, an economist at INSEE. “But it is a” good “price decline because it comes from a decline in oil prices will have a positive effect on purchasing power. It is even a support for growth “, he believes.

Paradoxically, this decline in prices can even help to trace the ‘term inflation because it will function as a revival of demand , for its part considers Isabelle Job-Bazille, Chief Economist of Crédit Agricole. Households can spend the extra purchasing power due to the drop in oil prices and companies, whose margins increase, will have greater ability to invest. True, the pressure deflationary remain, because of overly restrictive fiscal policies in the euro area and a monetary policy that has been slow to relax, but they have not yet materialized. “ Everything is still possible as most prices are falling for a year, including that of manufactured goods. But the worst is never sure.

Deflation is a mechanism that feeds on itself, a dynamic phenomenon is evaluated in time says Olivier Passet, economist at Xerfi. This is not because the prices drop on a month or even several months that economy is in deflation. This requires that all prices fall and cause behavior of purchases of durable goods reports, thus maintaining unemployment and driving down wages. Which then weighs the ability of debtors to repay their debts. It is only then that the deflationary spiral is set up and we are not there yet. “


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