Prices Are Falling- And So Is Unemployment

There has been some hand wringing over the fact that the Euro zone (and a lot of other currency zones as well) has experienced a falling consumer price index recently. But why should we be concerned about the fact that consumers are experiencing higher purchasing power? That sounds great to me, as a consumer i like it when i see that restaurants and stores lower the prices they charge me.

It is alleged that deflation will lower growth and increase unemployment. Yet on the same day that Eurostat published preliminary numbers of a 0.6% drop in the Euro area CPI (entirely due to cheaper oil) it also released a report showing that the Euro area unemployment rate fell from 11.8% in December 2013 to 11.4% in December 2014. It appears that price deflation does not have such a negative effect on growth as some people asserts….



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