Greece’s consumer inflation dropped. According to Greek Statistics authority ELSTAT, it eased to an annual -0.2 percent pace in March from 0.1 percent in the previous month. Herewith , it reached the lowest level after 46 years, since May 1968 when inflation hit -3 percent.
Inflation eased in March 2013 despite the price increases primarily in heating oil (+26.9%), electricity (+12.3%). In food items prices increases have been recorded primarily in fresh potatoes (+27.9%), fresh fish (+2.7%), fresh fruits (2.3%) and minor increases in dairy and eggs (+0.6%) and meat (+0.4%).
Prices increases were also recorded in cigarettes (+5.9%), clothes-shoes (+2.1%).
Most significant price decreases were recorded in medicine (-14.6%), home appliances (-8.4%), computers (-5.7%), cars (-5.3%) and telephone services (-5.1%).
Deflation occurs when the inflation rate falls below 0% (a negative inflation rate)
From what I understand, Greeks spend more money to cover up basic needs (food, electricity, heating) but spend less to buy a washing machine, a computer or a car. Taking into consideration the severe cuts in wages, pensions, the income in general, and the sharp increase in taxes , what would be the priority of recession-hit Greek household? A cheap car or food and electricity?
OK, a low inflation increases the value of money: you buy more goods for less money. But this provided, you have a steady medium to high income which is not at risk due to possible work place loss, tax increases and other instability factors. Otherwise, you end up paying the high prices for basic goods and consequently turn your head away from the cheap ones, you don’t definitely need.
“This is the first indication of deflation” experts told economic news portal Capital.gr, stressing that the deflation arrives with time delay. “Recession started in 2008, for 2013 it is estimated at 4.5%, and yet until recently prices kept on increasing. Experts worry to see that prices in basic goods remain high.
It is not clear, whether this deflation is temporary or permanent.
What does it mean in practical life and consumer behavior? Most probably that citizens will keep cutting expenses once they realize they pay less for goods they don’t need and more for goods they need. This will lead to lower production and consequently to lower prices.
Economists generally believe that deflation is a problem in a modern economy because it may aggravate recessions and lead to a deflationary spiral. A deflationary spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price.
Full ELSTAT report in English: Open PDF here
PS I would appreciate any experts’ comments on where this rate could lead Greece
In Greece the price of basically goods will remain high as long as the government does nothing about monopolies and price cartels that dominate the Greek industry. Transportation is also high, due to the fact that the sector is not liberalized. The Greek people should worry less about increased taxes that they cannot pay anyway, and focus public anger about pushing for reforms so that the economy can finally be a modern one again. I have not heard any protests on the street to beg for liberalisation of the economy, instead we have people protesting to keep Greece in a Soviet style economy, people such as the trade unionists who want to keep being paid by the government with taxpayers money to do nothing. If Greece undertakes the correct reforms and people work for the good of the country and produce goods instead of importing lemons for Spain, Greece will be paradise.
To stick with your lemons from Spain, there is absolutely nothing Greece can do unilaterlly about this. Just like it can’t stop international supermarket chains importing heavily subsidised tomatoes grown in greenhouses in Holland, and all the other madness the EU bureaucrats have put together under their barking mad schemes like the “Common Agricultiral Policy”.
Preventing farmers in countries growing their own stuff for their own country through “caps”, and then compensating them through CAP grants for loss of income… Insanity doesn’t come anywhere near to describing EU policies.
Unless Greece decides to take its fate into its own hands and leave the EU, it has to play by the rules dictated through EU madness. The last thing these boys have in mind is the welfare of Greece, Spain, Ireland, Portugal, Italy or the various peoples living there. That much has been made abundantly clear over the last 5 years…
@Economist, Privatization is okay as long as the oil and gas ressources from Greece (worth trillions of dollar) will not be stolen by the western countries (USA, Germany, France). This crisis is caused due the wealth of the greek nation sitting on big ressources. Destroying the greek economy since 2010 is the key to German banksters who wants their slice from these oil and gas deposits. Cyprus has also big ressources around the island – destroyed..
@Jannis – Yes, it is much better to have these resources stolen by those few filthy rich Greek families that have pillaged and plundered the country for the last century and managed to destroy the last remnants the Greek economy way before 2010. It is indeed also much better to scare every single real foreign investor out of the country so those families can keep on doing their wonderful patriotic work…
About the deflation: at least Greece seems to be getting out of the stagflation monster from which it is so hard to escape. Now there only has to be a couple of cartels busted and Greek produce might, eventually, have a chance to get competitive in the world again and Greeks might be able to buy cheaper stuff with their slashed incomes…
If only a couple of real structural changes would be implemented that haven’t been until now.
Yes, that is in essence ECONOMIST’s story, but without the neo-lib ideology.
@economist, Average Greek is a sheep just protesting what their PAME leaders tell them. Industrious Greeks don’t have time for protests as they are leaving for the USA, I met a real beautiful young Greek woman at the makeup counter here in NYC Macy’s who was a geologist in Greece and she told me she can make more money selling perfume to Americans than being a scientist in Greece. Keep them coming Elladastan as we will love to take them and make the USA even better