That Dreaded D Word

“Dial D for Deflation” declared the Economist in 2002 in an article which amazingly is still available online. Since Alan Greenspan officially declared the deflation scare over, the word has hardly cropped up in economic debates.

Yet anyone looking at the rapid rise in value of the euro, and the absence of growth in some key economies – Germany, Italy – could have been forgiven for thinking that the ‘all clear’ signal was being given a bit too soon.

Today the latest EU inflation figures are out from Eurostat (PDF file), and Goldman Sachs are warning that: ?without preventive action from the ECB, unit labour costs threaten to pose a future risk of deflation?.
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