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Greek Deflation Entrenches

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Greek Deflation Entrenches

In a further blow to both the Greek recovery and the diminishing price growth situation within the Eurozone as a whole, the National Statistics Service of Greece published data showing a further acceleration of deflation in the economy.

The benchmark inflation measure, the Consumer Price Index (CPI) contracted 2.0% in May, this figure when measured year on year is down from the April version of -1.3%. The surprise element however was limited as markets had agreed a consensus estimate for a 1.9% fall in consumer prices during the month.

Re-calculating the CPI data according to European Union standards does little to improve on the situation, the CPI-Harmonized year on year number is now showing -2.1% for the month of May, this is worse than the CPI outright but did not fall as much on the month as the April number was -1.6%, markets had estimated that this reading could fall by up to -2.2% during the month.

A slight silver lining for Greece came in the form of a pick up in Industrial Production numbers today. Following a contraction of -2.7% year on year in March, the April number stemmed the deterioration to come in at -2.2%.

A closer examination of the Industrial Production data however reveals that weakness in the Greek manufacturing sector is showing little signs of abating. The Manufacturing Production index for the month was reported as contracting by 3.0% compared to March’s contraction of just 1.5%. A concerning trend is setting into the manufacturing constituent of the Industrial Production data. Manufacturing showed some signs of life in the early months of this year, in fact both January and February posted positive numbers and encouraged some optimism towards the sector. It is becoming widely accepted that significant regulatory reforms need to be introduced in order to enable foreign investment take advantage of growing cost competitiveness within Greek industry.

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