From The Telegraph:
HT: MoneyBeatFrench President François Hollande must now pay the price for kowtowing to the contraction polices of the eurozone. His country is sliding into deflation.Photo: AP
French prices fell 0.6pc in January from a month earlier, and would have fallen even further without one-off tax rises.
Manufactured goods fell 3pc, and clothing fell 15.4pc as retailers slashed prices to offload stock.
France's core prices have been dropping for months, even if the core CPI index is still just positive at 0.1pc on a year-to-year basis.
This outcome is exactly what the Observatoire Economique predicted a year ago would happen under the eurozone's contractionary policy structure, that is to say under a triple squeeze of fiscal austerity, passive monetary tightening, and draconian bank deleveraging.
Surprise, surprise, the eurozone M3 money supply has been contracting since March.
People laughed at the Observatoire. Nobody is laughing any more. As the IMF said last night, Europe is one external shock away from a lurch into outright deflation.
"A new risk to activity stems from very low inflation in advanced economies, especially the euro area, which, if below target for an extended period, could de-anchor longer-term inflation expectations. Low inflation raises the likelihood of a deflation in case of a serious adverse shock to activity. In the euro area, low inflation also complicates the task in the periphery where the real burden of both public and private debt would rise as real interest rates increased."
It is no mystery where that shock might come from. The Fed and the Chinese central bank are tightening into an emerging market storm that is turning more serious by the day....MORE
