Falling prices can also be a reaction to overblown rises, as in the property market (photo:dpa)

Fears of deflation in Europe’s economies are misplaced

Deflation is seen as the big bogeyman among European economies. It is seen as the sign of a sick economy. But policymakers should tackle what is at the heart of holding back our economies from growth such as too many taxes, over-regulation and a growing welfare state.

<i>There are many reasons why we should worry about deflation: it slows down adjustment in the price structure, it creates tensions, stifles motivation and investment, and it aggravates the financial situation of highly indebted countries. Yet, one should also bear in mind that there is nothing intrinsically bad in lower prices, as all consumers know when they go shopping. Rather, deflation is a source of worry whe...

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Professor Enrico Colombatto
Rising prices convey the idea of a booming economy and are more conducive to investment. Falling prices are associated with weak economies, and investors react accordingly
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