Jake's View | Hongkongers survived some deflation, and so will Europeans

Euro zone slips into deflation as oil slumps

It is deflation because consumer prices in Europe on average fell by 0.2 per cent last month from their November levels. Oh, the horror of it all.

To put things in perspective, let us look at an economy in which consumer prices fell and did not return to their previous levels for 13 years, where the overall deflator for the economy went into decline and has still not retraced all the lost ground 18 years later.

We are talking of the economy of Hong Kong, of the Hong Kong dollar's history of price changes since the Asian financial crisis of 1997/98.

And while we may moan that it was not a happy time, particularly from 1998 to 2003 with the property market crashing and unemployment at record levels (that Spain would nonetheless love to have), there were also some plus points to this period of deflation. As the second chart shows, it was a period when real wages showed strong growth. Falling prices gave working people an increase in spending power which their bosses were loath to give them through wage increases and which they have not enjoyed for more than 12 years since consumer prices bottomed.