Greek deflation at record and could threaten future recovery from recession

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Greece’s severe recession continues to dissuade people from spending money, further dragging down consumer prices.

In November inflation fell 2.9 percent from the same month last year – worse than October’s 2.0 percent drop.

That is the deepest deflation on record and could make life more difficult for the Athens government.

The Organisation for Economic Cooperation and Development recently warned that a faster-than-expected fall in prices could hurt economic growth, increase Greece’s debt-to-GDP ratio and upset the economic projections underpinning its huge EU-IMF bailout.

Price falls come amid record unemployment and wage cuts.

Initially they were welcomed by the European Union and the International Monetary Fund as a way to make companies more competitive abroad and protect Greek consumers whose incomes have been sharply squeezed.

But now they are a potential problem. “This is unprecedented for Greece,” Nikos Magginas, an economist at National Bank of Greece said. “A protracted period of general price falls would deteriorate the country’s debt dynamics”, he added.

By contrast, the inflation rate in the 17 countries sharing the euro accelerated in November to 0.9 percent from 0.7 percent the previous month.

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