Is Higher Inflation Part of the Answer?

Wolfgang Munchau of the FT says no (at least for the euro area): you can read his article here.

8 replies on “Is Higher Inflation Part of the Answer?”

That said, it’s an interesting view on CDS. I nearly said “on the CDS market”, but that would be over-dignification of an opaque bucketshop.

One of Wolfgang’s points is that the Germans will never wear a higher inflation rate. I guess he is probably right. But his article can be usefully read in conjunction with another one of his recent pieces:

EP*/P is out of line with fundamentals. Given that E is fixed, it can adjust through core inflation and/or peripheral deflation. *If* political constraints mean that the core will not inflate, and that the periphery (or at least Spain) will not deflate, then the eurozone is in trouble. And even if the entire periphery were willing to deflate, a system which imposed asymmetric adjustment in this manner, and had in consequence a deflationary bias, would begin to look like other past monetary experiments that are now history.

Munchau is much referenced especially on the euro intelligence bulletins.

Is he very well regarded amongst the financial/economcis world as authoritative or is he more know for thought provoking and reasonably sound commentary

Inflation is all that a kleptocracy knows. Without it, too many rent seekers end up having to work and it becomes quite obvious that much of what governments must do is in fact a waste of their time and our money.

Deflation is natural and good! It reflects the increasing purchasing power of money: that store of wealth achieved by past work. Inflation is how everyone in the scam steals that past work from each of us! They devalue it. Then they share it out to “everyone”. As an emergency measure it makes sense, but these guys have made it into a kleptocracy. It can never be a permanent measure! Oxymoron alert!

I think therefore that inflation has NO place in any economy!

He makes the interesting point that the impact of active fiscal measures has been “disappointing”. If you take as an up to date summary the yoy volume retail drop in Ireland (large fiscal retrenchment, -3.7%) vs eurozone average (large fiscal stimulus, -2.0%), then it is clear that he has a point.

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