FRENCH WORRY ABOUT DEFLATION

DEFLATION IN FRANCE?

"The worrisome specter of deflation has raised its head in France." In: a piece published today, April 10, 2009, entitled, "France very close to deflation" the Paris cyber-magazine, Liberation.fr, (http://www.liberation.fr/economie/0101561332-la-france-tres-proche-de-la-deflation) reports that inflation has continued to fall. "In February it was four-tenths of one percent and in March, it reached only two-tenths of one percent (0.2%), while annually, inflation is now estimated at just three-tenths of one percent (0.3%).

"These figures, (are) the weakest annual since June 1999. The chief (government) analysts of inflation predict the possibility of deflation in the near future. Paradoxically this phenomenon (deflation i.e. falling rather than rising prices) is a new threat to the economy because it significantly lowers demand (the consumption of goods) and strongly impacts economic activity. In effect, in the case described, the consumer anticipates the fall of demand (anticipates that prices will continue to fall—i.e. deflation) and thus defers consumption and investment and encourages savings. " Thus the fall of demand (all consumption of goods) has a strong impact on economic activity," states the Liberation.fr author. The author adds, "This phenomenon is presented in the economic manuals as a precursor of generalized depression. Thus it is the last stage of economic catastrophe."

In a personal example, this author knows a couple well, who were contemplating the purchase a new home in a small Florida community near where they owned a condominium. The advantages of the pleasantly developed small community, shops near by, their own garage and a back garden were attractive inducements. Within this community they found a nice three bedroom they liked, but a little research revealed that prices were falling consistently and there were many houses available. The falling prices caused them to reconsider. "Why should we buy now at $250,000, when we could wait a few months or more and pick this same property up for less than $200,000?" asked the husband. The wife added: "And how would you feel, if you did purchase now, moved in there and discovered that your neighbors bought a very similar house next door for half the price that you paid?" "I’d feel like a real dummy!" he responded. They decided to wait and kept their funds in the bank.

"Energy and Fresh Products: Prices Fall."

The very light rise of inflation in March, ‘resulted principally from the rise of the price of clothes, shoes (+6.0%) and of other manufactured products (+0.5%) resulting from winter sales’ reveled the Institute of National Statistics. The same with the prices of rents, of water and of services of removal of household wastes (+0.3%).

"These increases were ‘in part compensated for by the fall of price of energy (-2.0%), services of transport and communication (-0.8%) and of fresh products (-1.1%). The prices of other food products and other services were stable’ noted the National Institute of Statistics."

(Translation by RJK)

Thus the fall of prices in France were confined to lower energy, transport, communications and fresh products, while other services were stable, clothes, shoes and These were partly compenstated for by rises in prices in wearing apparel..manufactured products and rents were close to even However, these elements all have an important impact on the over-all economy. One wonders will this