Deflation is pushing Ireland to restructure faster

With consumer prices down 3 percent, Ireland is seeing a tough but necessary restructuring through deflation.

Don Duncan/File
One of many new houses empty and unsold around Ballymahon. Ireland's difficult but healthy deflation is allowing it to restructure faster than many other European nations.

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.

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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