Even the New York Times is keeping a close eye on what’s happening in Spain noting that falling prices are a worrying sign of deflation that characterised the great depression.
With the combination of rising unemployment and falling prices, economists fear Spain may be in the early grip of deflation, a hallmark of both the Great Depression and Japan’s lost decade of the 1990s, and a major concern since the financial crisis went global last year.
Prices rocketed in Spain during 2008 as the consumer price index graph in the article shows so some kind of decrease was inevitable and indeed, necessary. However, the index has now dropped below 0 which is why deflation is such a concern. Meanwhile it looks the UK has already returned to deflation for the first time since 1960.
