One of the reasons the ECB cut Eurozone interest rates last week was because of the fear of deflation in Greece, Portugal and now Spain. Salaries are starting to fall and consumer prices moving south.
Spanish property prices continue to fall with no sign of any change in the coming few years. Deflation is something new and in my view can only help a country crawl out of the malaise Spain currently finds itself in. Of course business or government does not want to see deflation since that will impact profit margins and tax receipts, increasing the need for borrowing. However from a consumer point of view price deflation is nothing but good news.
This statement made me smile. Dario Perkins, of consultancy Lombard Street, said the spectre of deflation was alarming, because the ECB has few weapons left in its armory to fight it.
No surprise there then the ECB has proved fairly impotent anyway.
Very soon as I predicted on here several years ago you will be able to buy a holiday home in Spain for the price of a modest new car. Leaving everyone else who bought in the boom holding an expensive white elephant. That’s market economics folks, some win, most lose.
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