Wednesday, May 06, 2009


The WSJ reports (link):

"Consumer prices in the 30 members of the OECD rose 0.9% in the 12 months ended March 31, the lowest level since records began in 1971. The previous record low was the 1.3% rate of inflation recorded in January and February of this year. As recently as July 2008, the OECD inflation rate stood at an 11-year high of 4.8%. The OECD said energy prices in its 30 member countries dropped 11.8% in the 12 months to March, having fallen by 8.6% in the 12 months to the end of February. Food prices rose 4.5% in the same period, having risen 4.8% in the 12 months to the end of February."

Interestingly, Iceland and Ireland had the most extreme movements in consumer prices in recent year. Iceland, which has been severely hit by the crisis, experienced 15.2 percent inflation rate in recent year, partly as a result of rapid domestic currency depreciation after its banking sector collapsed. On the other hand, Ireland experienced a modest deflation (-2.6 percent) in recent year, mostly due to a significant reduction in investment demand. As the interest rate kept falling steadily (link), the risk of deflation emerged because lower interest rates on overnight loans failed to boost the investment activity and credit flows in the light of credit crunch, falling stock market indexes and grimmy data from the labor market. The OECD countries, indded, face the lowest inflation rate in the last 30 years and the deepest output contraction after the oil shocks shackled the world economy in 1970s and 1980s. Meanwhile, cutting interest rates further could bloat the liquidity trap, the consequences of which are well-known and painful in ther long-run perspective.

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