The new coronavirus kills an already dead inflation. Especially in the Eurozone.
Overall the viral infection has deflationary effects on the dynamics of consumer prices. On the cost side and on the demand side. While on the supply front there is a shortage of some goods for the disruptions in value chains which have blocked some important manufacturing plants (of cars, planes, electronic goods) due to lack of components.
On the cost side, in fact, the forced shutdown of many manufacturing activities in China has made the prices of those commodities fall, from oil to copper, of which Beijing is a large importer.
On the demand side, the internal Chinese one has become as rarefied as the human presence in the malls and on the streets of the largest cities, become deserted in the week of celebrations of the lunar new year, i.e. in the period of greatest spending (a bit like Christmas here). And with haywire logistics due to the quarantine decided by the authorities or self-imposed by fear of contagion, online sales have also been deserted.
On the supply side, it is true that some plants have been closed, however at this stage there is large spare capacity therefore the temporary suspensions of activities do not constitute real bottlenecks that generate price increases as a form of rationing of demand.
Therefore, the virus has given an additional deflationary thrust. To the desperation of central bankers.
On the other hand, they have to deal with what Mario Draghi called before leaving the ECB the puzzle of the failed transfer of the increase in costs on producer prices.
A puzzle that, however, a simple solution: competition. Not just the one that comes from globalization and which increasingly affects the tertiary sector (with artificial intelligence which allows you to communicate in languages other than your own, many more services are delocalized), but above all the one that comes from new technologies, which increase transparency and price comparison and extend from online to traditional sales.
As the US CEOs say: «We are in a price war». A war destined to last a long time and which is the way in which the diffusion of technological innovation spreads its advantages in terms of increasing well-being.
