By: Mike Campbell
Inflation, as we all know, is when the price for a commodity rises. When the inflationary pressures in an economy become too strong, governments and central banks will intervene to get it under control. This is usually done by making money more expensive through raising the bank interest rates. You could be forgiven for thinking that any inflation was a bad thing. Deflation, on the other hand, is when the price for the same commodities fall which, from a consumer point of view, is a good thing, you might think. Governments and central banks would try to make the money supply easier to reduce deflationary pressure. The view is that deflation is a bad thing since it encourages consumers to delay the purchase of non-essential items on the belief that the price will be cheaper when they eventually do make the purchase. This can hinder economic growth and put pressure on employment which may fuel further deflationary pressure.
The Eurozone economy has returned to positive inflation for the first time in seven months. Eurostat said that inflation for the year to November was at 0.5% within the zone. Much of the inflation has been due to increased energy costs. Across the European Union as a whole, inflation was at 1%, up from 0.5% in October. The European Central Bank’s target for inflation within the EU is 2%. Analysts are predicting that Eurozone economies will post a positive GDP for the second successive quarter when Q4 data is released. On the unemployment front, the rate of people becoming unemployed has eased to its lowest rate in 14 months.
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