Europe On Verge Of Deflation, But Equities Show Little Concern

The threat of deflation is growing, both in Europe and to a lesser extent in the US, and investors who have spent the last twenty years watching Japan try to crawl out of its own deflationary trap are understandably worried about how to position themselves if their fears should come true.

European equities unaffected by specter of deflation

Headline inflation is already extremely low – the consumer price index (CPI) is below 1% in Europe and the producer price index (PPI) has gone negative (with core inflation numbers roughly the same). Southern Europe certainly pulls down the average as Greece is already experiencing deflation and the rest of the periphery is at nearly zero inflation, but even central...