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Friday, June 12, 2009


ireland inflation at (-4.7%)

via calculated risk, the irish times.

Prices fell 4.7 per cent in the year to May, the steepest rate since 1933, according to new data from the Central Statistics Office (CSO).

The Consumer Price Index (CPI) fell 4.7 per cent on an annual basis and by 0.5 per cent in the month. This compares to an increase of 0.8 per cent recorded in May 2008.

The HICP, the EU-wide measure of inflation that excludes mortgage interest, is down 1.7 per cent annually, giving Ireland the lowest inflation rate in the EU.

HICP inflation turned negative in Ireland last month for the first time since the index began in 1996.

Inflation turned negative in January and the rate of decline has accelerated each month since.

The main reasons for the decline were falls in the cost of mortgage interest repayments and rent due to successive interest rate cuts by the European Central Bank, which in May cut rates by 0.25 per cent to a record low of 1 per cent. ...

Mr Bruton said if the Government had applied a price freeze to all State administered and regulated services as he party suggested then the fall in prices overall would have been 6 per cent.

In May 1933 prices fell at 6.9 per cent.

deflation in ireland was not unpredictable.

the united states, much like the british empire of the 1930s, has ridden a safe-haven reserve currency and its status as the global source of excess demand into a relatively softer decline. the story here is by no means over -- as monetary policy has been sidelined by the collapse of borrowing, government fiscal policies globally will be critical in determining how far the collapse goes before cash flows stabilize. this particularly figures to be a problem in europe under the restrictions of the maastricht treaty; ireland is a poor example of europe as a whole, having had more in common with a euroized iceland, but this could become an altogether too common and tragic theme.

“The S&P downgrade was a kick up the backside,” said Jim Power, chief economist at Friends First in Dublin. “There is a short-term firefighting issue in the budget and a longer-term sustainability issue.”

i suspect ireland is about to find out that cutting government spending will mean larger, not smaller, deficits as economic activity and tax revenues crash out in the aftermath. "sustainability" is something politicians know precious little about in good times and should pay even less attention to in crisis. richard koo recently remarked that ratings agencies, as counterproductive in their evaluations of the public balance sheet during depressions as they were in evaluating private credit during the boom, must be broadly ignored for the duration as govenrments preserve global incomes and deposits through fiscal deficits.

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