Home' Trinidad and Tobago Guardian : January 29th 2015 Contents JANUARY 2015 • WEEK FIVE www.guardian.co.tt BUSINESS GUARDIAN
INTERNATIONAL | BG21
If the multi-billion dollar consumer
electronics industry can function
fine with constantly falling prices,
why is deflation in the broader
economy such a threat? Falling
prices may really be more a symp-
tom of malaise rather than a cause
for further grief.
European Central Bank policymakers have
repeatedly warned of the risk of being drawn
into a prolonged downward price spiral, a
danger that has led them to an unprece-
dented government bond-buying pro-
gramme that will pump hundreds of billions
of new euros into the sagging euro zone
Inflation turned negative in the currency
bloc for the first time in five years in Decem-
ber. But this is not yet the sustained deflation
policymakers fear, and even ECB board
members accept weaker oil prices should
increase spending power - recognising that
falling prices do not necessarily stifle con-
A prime evil of deflation, some in the
ECB warn, is that consumers and companies
would delay purchases and investment
because they anticipate lower prices in the
Sure enough, Italians are cutting back on
Airports Authority of Trinidad and Tobago ('the Authority')
invites suitably qualified firms and individuals to submit
proposals for leasing and developing land at the Piarco
AeroPark for a Home Furnishings retail centre. This is an
attractive opportunity to operate in one of the most
high-traffic areas in Trinidad and Tobago.
The Piarco AeroPark is a mixed use business park just north
of the Piarco International Airport in Trinidad and Tobago.
The Piarco AeroPark is the first aerotropolis or airport city in
the Caribbean. It will contain zones for various activities
Copies of the RFP can be obtained from December 30th
2014 between 8:00a.m. and 4:00p.m. at the Cashier's
Booth, Airports Authority Administration Centre, Piarco
International Airport, South Terminal, Golden Grove Road,
Piarco, Trinidad and Tobago upon payment of a non
refundable fee of US$200.00 plus VAT.
A Pre-Proposal Conference and Facility Tour will take
place at 10:00a.m. on January 28th 2015 at the following
Proposers and their representatives are encouraged to attend
the Facility Tour to acquaint themselves with the conditions
therein which may influence their proposals.
The deadline for submission of proposals is February 27th
2015 at 2:00p.m. AST. Late submissions will not be
The Authority does not bind itself to accept the lowest or any
Questions or requests for further information should be
The Secretary Tenders Committee
The subject line should read
Development of a
HOME FURNISHINGS RETAIL CENTRE
at the Piarco AeroPark
TrINIDAD AND TOBAGO
basic purchases in an environment of falling prices.
But is there a causal link? Would you defer buying
a car or a sofa simply because you expected it to be
onr to two per cent cheaper next year?
Also, with interest rates so low, what is the incentive
"Personally I think that the issue of consumption
deferral is not the case, at least in the euro zone,"
said Guntram Wolff, director of the Bruegel think-
tank in Brussels.
However, Wolff and other economists say there
are reasons for concern.
First, negative inflation means real interest rates
are always positive, given lenders do not offer loans
at rates below zero. This dampens investment.
Second, falling prices increase the real burden of
debt, hampering, for example, Italy's efforts to stabilise
a debt-to-GDP ratio of around 130 percent.
"It's a vicious circle that sees the real weight of
debt increasing and the state cutting spending to
service it. That's the main worry of the ECB," said
ING's chief euro zone economist, Peter Vanden Houte.
This was the debt-deflation theory of American
economist Irving Fisher on the Great Depression that
reckoned that any increased spending by creditors
would not match spending cuts forced on debtors.
A further issue is that the euro zone needs varying
levels of inflation; low in the euro zone periphery to
restore competitiveness and high in countries such
as Germany to let the chasing pack catch up.
Prices have fallen year-on-year for multiple months
in Greece and Spain and for three of the past five
months in Italy, according to Eurostat data, but Ger-
man harmonised inflation is now also just 0.1 per
Good and bad deflation
The Bank of International Settlements (BIS), in its
last annual report, differentiates between "good"
deflation and "bad" deflation.
In the period before World War One, deflations
were generally "good", as real GDP mostly continued
to expand when prices declined.
Between the wars, the number of "bad" deflations
increased, although at most times output still rose,
albeit more slowly.
For the 1990-2013 period, deflation episodes were
on average more like the earlier "good" kind, BIS
Furthermore, it said that only the Great Depression
could really be referred to as a deflation spiral.
Commerzbank Chief Economist Joerg Kraemer
confesses he does not see deflation as a grave prob-
"Deflation is one of the most abused terms in eco-
nomic policy discussion," he said.
Corporations can overcome mild deflation with
increases in productivity, he said. For governments
with debt, deflation poses a challenge, but one that
is manageable with savings.
He also points to Switzerland as a country that
has logically chosen deflation, by unpegging the franc
from the euro and so allowing it to jump. Its central
bank had previously been intervening aggressively in
currency markets, boosting its liquidity and driving
up real estate prices.
"They will have a longer period of negative inflation
but they are ready to take the risk to avoid the longer-
term risk of a real estate bubble," Kraemer said.
Commerzbank says the euro zone's problem is not
deflation, but "zombification", particularly ECB policy
that reduces pressure on governments to carry out
Demon or not, will the ECB's quantitative easing
boost prices? The euro has dropped sharply, making
imported goods more expensive, and stock markets
have risen. But the aggressively increasing money
supply needs to enhance overall sentiment if consumer
prices, not just asset prices, are to rise.
"If there's no final demand, you can't raise prices
and there's no inflation. The financial side is impor-
tant, but the real economy has to follow to get prices
rising again," said ING's Vanden Houte.
Should the euro zone really
fear demon deflation?
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