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Deflation is pushing Ireland to restructure faster

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(Read caption) One of many new houses empty and unsold around Ballymahon. Ireland's difficult but healthy deflation is allowing it to restructure faster than many other European nations.

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In March 2009, the Irish inflation rate fell below zero for the first time in decades. It was -0.7%, compared to 0.1% in February 2009.

Given this, one would have expected the inflation rate to pick up (or perhaps more accurately deflation rate to drop) now because of base effects.

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The increase in the overall euro area inflation rate from 0.9% to a preliminary 1.5% reflected this. But it held firm at -2.4%.
 
 The gap to the euro area average thus widened to a record high 3.9 percentage points. During the last two years, consumer prices are down a cumulative 3.1% in Ireland, compared to a cumulative 2.1% increase in the overall euro area (While the U.K. number is not yet available, it was almost certainly a lot higher than the euro area, probably around 6%).
 
 Ireland is thus further down the path of a painful but healthy deflationary restructuring of its economy than other crisis hit European economies.

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