Since 2014, or the threat of negative inflation (falling prices for goods and services) has been a persistent problem for some of the world’s largest developed economies. Euromonitor International forecasts that 16 countries globally (at the time of writing) will register deflation overall in 2015. These include Italy and Spain, the third and fourth largest economies in the eurozone. A further 44 countries worldwide are projected to post inflation rates of less than 1.0% to zero in 2015, including France, Germany, UK and the USA.
The sharp decline in world oil prices (and the consequent fall in energy and petrol prices) since 2014 is a major driver of this trend, while in some countries such as the UK, food price falls have also contributed. A stronger pound and US dollar have made imports cheaper for domestic consumers in the UK and USA, bringing further downward pressure on consumer prices. There has been much scaremongering about the spectre of deflation but in some situations, decreasing prices can be a sign of a competitive economy. Understanding the economic context of deflation is key.