Category Archives: CPI

14/5/15: The Happiest Deflationary Consumers of Ireland… April 2015 Data.

Good thing Consumer Confidence is booming in Ireland, cause otherwise we might get a wind that domestic demand for goods and services is going nowhere:

Now, how would we get such an idea. you might ask? Well, : take a look at consumer prices:

Spot the trend? That's right: CPI was down 0.7% y/y in April and down 0.6% on average over the last 3 months.

And in case you want to see what 'sustains' at least some semblance of non-totally-collapsing prices? Why here it is:

Well, the only reason we are not a complete basket case come inflationary dynamics is thanks to tobacco and alcohol (up whooping 26.5% over the pre-crisis average thanks to tax extraction by the State), and electricity and rents (pushing housing, water, electricity, gas etc up 7.1% over the pre-crisis levels - you might also call that tax extraction, for much of these increases goes to fund semi-states and quangos and soon-to-come Irish Water), Health (where much of the 'savage cuts' were just something masking the actual hikes in cost of services to those of us who pay for them), and Education (where state extraction of funds was so rampant as outpace by a factor of 10 overall inflation in the economy), and Restaurants & Hotels (where the cut in Vat did nothing to alleviate price pressures on consumers), and a bunch of state-related and regulated prices that went into Miscellaneous category.

And so just as with retail sales, deflation is now consistent with rising consumer confidence. Happiness attained, at last. Just never ask what happens to demand when prices (imported from the rest of the Euro area) start creeping up across all sectors... that is something polite Irish economy forecasters don't want to talk about...

23/4/15: Where the Bad of Deflation Looks Good…

You know the theory of the 'Bad of Deflation' - I wrote about it before... the story goes as follows: if prices fall, and consumers expect them to continue to fall, then rational consumers will withhold their demand, delaying their purchases in anticipation of lower price in the future. The result will be: reduced demand today, lower investment by the firms in future production, lower investment in innovation, stagnation, layoffs, recession... locust... fire balls falling from the skies and pestilence of the kind that only Central Bankers can save us from.

You also know my response to this, especially in the current macroeconomic conditions: falling prices support household real incomes and increase households' ability to finance debt and debt deleveraging, while sustaining at least some semblance of civilised demand.

But don't take my word for this. Here is a handy chart plotting... deflation in the price of hard drives:

It's source is here:

Do let me know if you know of any evidence that demand for hard drives has been 'delayed' by consumers or that innovation has 'stopped' in fear of lower prices/returns by companies, or if you have seen locust swarming around...