LONDON | Barclays analysts | We believe this week’s data on inflation and economic activity have provided more arguments to step up ECB’s asset purchase programmes by including EGBs on 22 January, which is our baseline scenario. Inflation entered negative territory in December and is likely to stay negative for a few months before a weaker euro improves the inflation and growth outlook.
LONDON | By Jim McCormick and Keith Parker (Barclays) | At the start of the year, we analyzed the risks of a prolonged bout of deflation in the euro area (Japan-style deflation in Europe getting harder to dismiss). Our broad conclusion was that the risks of deflation in the euro area were probably not materially different from the risks Japan faced in the mid 1990s. Perhaps more important, we felt investors should picture 1996-97 Japan when assessing the risks of euro area deflation today.
MADRID | The Corner | In a report by Atradius Credit Insurance, they say that the disinflationary trend is visible across the Eurozone, but not all countries are expected to face the same issues. Countries that have a large output gap and those that still have to implement the most reforms will face the highest disinflationary pressure. To create a list of the countries most likely to be impacted, we first select the Eurozone markets that have a budget deficit larger than 3.0%, as these are subject to the Excessive Deficit Procedure which forces them to implement fiscal and structural reform.
SAO PAULO | By Benjamin Cole via Marcus Nunes‘ Historinhas | As I predicted, the right-wing has gone past its fixation on absolutely dead prices as an economic cure-all and moral imperative, to the even-better nirvana of…deflation. I wish I was making this up. But comes now University of Chicago scholar John Cochrane, path-breaking with stalwart allies such a FOMC member Charles Plosser, that deflation is an economic elixir, not a sign of stagnation. Cochrane authored a recent The Wall Street Journal op-ed genuflecting to southerly price drifts. I just don’t get it.
MADRID | By Francisco López | The collapse in the price of raw materials in the last number of weeks is good news for consumers, but very bad news in macroeconomic terms because of the heightened risk of deflation in the eurozone. Oil continues to plummet and a barrel of Brent is now priced at $82, 30%, lower than its June level and is currently trading at a four year low.
MADRID | The Corner | Which is the real origin of the deflationist pressure that the global economy is facing? A greater desire of saving money than investing at a global scale, experts at Morgan Stanley point out. The eurozone, Japan and the most stable emerging countries have a greater control over their domestic interest rates, whereas China, whose currency is pegged to the USD, will also import deflation -something Beijing won’t like.
SAO PAULO | By Marcus Nunes | I do not want to question the likely bad effects that come about owing to a large unexpected deflation (or inflation). What I want to question is whether a period of prolonged moderate (and presumably expected) deflation is necessarily associated with periods of depressed economic activity. Most people certainly seem to think so. But why?
MADRID | By Luis Arroyo | The Spanish National Statistical Institute has recently published May’s CPI. The chart shows the 0.1% annual variation with respect to May 2013. Such variations determine a curious outcome on the price level, as the second chart exhibits.
COPENHAGUEN | By Peter Ludgreen via Caixin | Despite recent moves by the European Central Bank – one of them historic – it will continue to fight against very low inflation and growth. [Cartoon published by The Japan Times]
MADRID | By Luis Arroyo | You probably know Jaime Caruana. He is an inept who ignored the warning signals of the Spanish bubble although as the central bank governor he was the main responsible for it. And now that he is the Bank for International Settlements (BIS) head and Spain’s housing prices have declined by 40% on average according to property valuer Tinsa, he disregards deflation risks.