Deflation is pushing Ireland to restructure faster
With consumer prices down 3 percent, Ireland is seeing a tough but necessary restructuring through deflation.
In March 2009, the Irish inflation rate fell below zero for the first time in decades. It was -0.7%, compared to 0.1% in February 2009.Skip to next paragraph
Stefan is an economist currently working in Sweden.
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Given this, one would have expected the inflation rate to pick up (or perhaps more accurately deflation rate to drop) now because of base effects.
The increase in the overall euro area inflation rate from 0.9% to a preliminary 1.5% reflected this. But it held firm at -2.4%.
The gap to the euro area average thus widened to a record high 3.9 percentage points. During the last two years, consumer prices are down a cumulative 3.1% in Ireland, compared to a cumulative 2.1% increase in the overall euro area (While the U.K. number is not yet available, it was almost certainly a lot higher than the euro area, probably around 6%).
Ireland is thus further down the path of a painful but healthy deflationary restructuring of its economy than other crisis hit European economies.
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