Deflation was at the level of minus 2.6 percent in February, compared to minus 1.3 percent for the previous month.

The fall in prices is due to decreases in the prices of vegetables, electricity and petroleum products, said the Cyprus Statistical Service (CySTAT).

The deflation rate in January 2015 was minus 1.4 percent.

What is deflation?

Deflation is a general decline in prices, often caused by a reduction in the supply of money or credit.

Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. (Source: Investopedia).

So far, there has been little action to stop the decline of prices in Cyprus, but if it continues in this direction, our economic recovery could be negatively impacted.

There is a reasonable argument that there was a bubble in Cyprus’ prices and they needed to be more proportional to the size of the economy. But deflation at this rate could get serious very quickly, turning into another black hole for the economy.

Possible side effects could be more company bankruptcies; even less consumer spending; and lower profits, meaning more unemployment.