This is quite incredible.
If anyone isn’t fully convinced that the eurozone is flirting with deflation, the latest batch of data from Europe and Japan should remove those doubts entirely.
The eurozone’s consumer inflation rate is currently lower than that of Japan, a country that has become the poster child for deflation over the past two decades. Deflation is an economic phenomenon under which prices are continually falling.
Here’s the data to prove that. The eurozone’s annual consumer inflation rate, represented by the harmonised consumer price index(HCPI), stood at 0.7% in January, slipping from 0.8% in December.
Core inflation — excluding food, energy and alcohol and tobacco prices — crawled to 0.8% in January from 0.7% in December.
How does that stack up against Japan?
According to the latest data, Japan’s consumer price index for December was up 1.6% from a year ago, and up 10 basis points from a month ago. (100 basis points make one percentage point.)
Core inflation — excluding food, energy and alcoholic beverages — was at 0.7%, only marginally lower from that of the eurozone.
Japan’s inflation rate has been improving in recent months as a result of the Bank of Japan’s (BoJ) shock-and-awe monetary easing measures introduced early last year, with the intention of lifting the inflation rate to 2% in the medium term.
The country has been battling falling prices for two decades and the BoJ is hoping to reverse that trend by going all out and implementing big-bang measures, rather than taking timid steps one-by-one, as it used to do earlier.
Meanwhile, European Central Bank officials continue to wait before taking action against the looming threat of deflation.
(To find out more about why deflation is such a big threat to economies, click on this earlier blog post of mine.)
Even if Japan’s inflation doesn’t continue to climb (and there are many who believe it won’t), the recent data should convince ECB officials of the need for more urgent and stronger monetary easing measures.
Deflation is coming, Europe. It’s time to take some decisive action. Quickly.