Falling Prices Were Born for Eurozone Households

        By Paul Hannon
        Falling prices may be a sign of economic weakness, but they were a boon to eurozone consumers in the first three months of the year.
        Many economists believe falling consumer prices are bad for economic growth over the long-term because they discourage spending and investment and push real debt levels higher. That's why central banks have tried so hard to avoid slipping into deflation, with the European Central Bank launching a new program of quantitative easing as the first quarter drew to a close.
        But there is no doubt the decline in prices between December 2014 and April 2015 helped deliver a much needed boost to real incomes in the eurozone. Figures released Wednesday by the European Union's statistics agency show real disposable income per capita--a measure of how much consumers have to spend on goods and services--jumped by 0.9% in the first quarter, the sharpest rise since the first quarter of 2009.
        One reason for that jump was a 0.5% rise in wages and other forms of income. But a further boost came from a 0.4% fall in prices over the period. Rather than save their windfall as they did in 2009, households chose to spend, with consumption per capita rising by 0.8%, the largest quarterly increase since at least 2004.
        It's doubtful incomes will continue to rise at that pace during the rest of 2015. Prices have stopped falling, and while wages are likely to increase, high rates of unemployment will limit those gains.
        Failing a further boost from household consumption, any acceleration in the eurozone's so far tepid recovery will require an increase in exports. But so far, the weaker euro hasn't helped. The first quarter may have been as good as it's going to get.
        (END) Dow Jones Newswires

        July 29, 2015 09:25 ET (13:25 GMT)

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