ROME: The cost of living in Italy dropped 0.6 percent in January compared to the same month in 2014. The biggest single-month drop in more than half a century, a development economists say could erode some of the economic benefits from a weaker European currency.
Prices in Italy dropped in three of the 12 months in 2014, according to ISTAT, Italy’s national statistics bureau. But none of those months saw the kind of erosion of the cost of living as dramatically as in January, which had the largest one-month level of deflation since September 1959, when the post-World War II rebuilding efforts were drawing to a close.
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In the short-term, consumers welcome deflation because it means prices for every-day expenses like food, transportation, energy, and consumer goods are lower, increasing their buying power.
But sustained deflation something that appears to be a growing risk for Italy and some other countries in the eurozone – is problematic because it makes it harder for the government to pay down debt from a shrinking tax revenue stream. It also makes it more difficult for companies to remain profitable, since they must pay workers fixed salaries while charging less for their products.
