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Thursday, July 30, 2009

When Falling Prices "Aid" Confidence

Missed this yesterday. BBC (via Credit Writedowns) details:

German consumer prices fell for the first time in 22 years in July, official figures have shown. Prices fell 0.6% in July from a year earlier – the first fall since March 1987, when they declined by 0.3%. The decline was largely due to falls in energy prices, which peaked in summer 2008, and analysts said Germany was unlikely to see a deflationary spiral. Prices can fall for a short time without hurting the economy, but prolonged declines can be damaging.
Dirk Schumacher, an analyst at Goldman Sachs, said that the falling prices could help the economy in the short term. "Falling prices are aiding consumer confidence and purchasing power. That’s aiding consumption," he said."This is not deflation. We’re still far away from that. It’s no cause for alarm," he added.


Back to Ed from Credit Writedowns:
Right. Keep telling yourself that.

Prices are falling. This is deflation and it should underline for anyone with half a brain that deflationary forces of demand growth declines, deleveraging and overcapacity are still at work.
Source: DeStatis.DE