It's Time for the European Central Bank to Admit Deflation

In March, a member of the European Central Bank Governing Council said that the "deceleration of prices" in the eurozone would be temporary.

But it appears that much of the European Union's price deflation has become a trend.

The ECB's assessment of price deflation has been shortsighted, according to a July 30 Bloomberg article by Mark Gilbert titled, "Europe Won't Admit It's Spiraling Into Deflation."

Referring to the ECB's March remarks, Gilbert writes:

What sounded unlikely then now looks myopic, misinterpreted or disingenuous, depending on how charitable you're feeling.

The article mentions Spain as an example of why it's time for European financial authorities to admit that the Continent is spiraling into deflation.

Figures today show Spanish consumer prices dropped at an annual pace of 0.3 percent this month. Inflation there has been below 1 percent for a year. If the technical definition of a recession is two consecutive quarters of shrinking gross domestic product, it seems fair to suggest that a further slowdown in Spanish prices next month would put the country in deflation.

Moreover, prices are dropping even though growth figures also released today show the economy expanded by 0.6 percent in the second quarter, beating the 0.5 percent anticipated by the Spanish central bank. All of which bodes badly for the ECB's efforts to avert deflation in the euro area.

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