Fatas, A. (2014) “The Price is Wrong”, Antonio Fatas on the Global Economy Blog, 14 Απριλίου.
The Euro area inflation came lower than expected in March and this has raised concerns about deflation (or “lowflation” as labelled by the IMF). In today’s Financial Times, Jurgen Stark, a former ECB board member argues that deflation or low inflation is not a problem. One of his arguments is that there are benefits for low inflation, in particular:
“It is likely we are living in an extended period of price stability. This is good news. It boosts real disposable income and will eventually support private consumption.”
(By the way, Mario Draghi used the same argument in his last press conference).
So low inflation raises real income and it helps boost demand and output. The economic logic behind this statement is at best unclear, at worst completely wrong. Unfortunately, the misconception involved in this sentence is not that uncommon and it reflects the poor understanding of the general public (and public officials) about inflation, nominal and real variables. But it also reflects poorly on academic arguments based on models with price rigidity that, in my view, are not always as clear as they should when it comes to the dynamics of absolute and relative prices.
Σχετικές αναρτήσεις:
- Pisani-Ferry, J. (2013) “Europe’s real inflation problem”, Project Syndicate, 30 Νοεμβρίου.
- King, S. (2013) “Η επικίνδυνη εμμονή της Γερμανίας με την αποταμίευση”, Η Ημερησία, 19 Οκτωβρίου.
- Watt, A. (2013) “Bad and Good News on Euro Area Inflation”, Social Europe Journal, 16 Οκτωβρίου.