Luis de Guindos, Spain’s Economy Minister, sings the praises of low inflation.
Via translation from El Economista, please consider Economy Minister Says Deflation Has “Positive Impact”.
James Daniel, Spain’s mission advisor to the IMF, said that inflation close to zero in the country increases the burden of debt and real interest rates and difficult to reduce unemployment.
Daniel’s words contradict the perception Luis de Guindos, the Spanish Minister of Economy and Competitiveness, who also said today at a press conference that low inflation “is having a positive impact” and help the country’s competitiveness.
Guindos noted noted that, far from being a threat, “the low level of inflation is allowing Spain win competitiveness.”
However, he recognized that low inflation could become a “problem” if it lasts “long” and affects the process of deleveraging in the Spanish economy. The minister expects inflation to fluctuate in the coming months at around 0.5%.
Guindos had it correct until that last sentence. Low inflation, or deflation is never a problem. Rather the buildup of debt that cannot be serviced is the problem.
Since the buildup of debt is the problem, inflationary solutions that encourage people and businesses to expand debt cannot possibly be the solution.
Falling wages have had a positive effect on Spain’s competitiveness, so much so that France is bitching about the invasion of Spanish builders undercutting French firms in price.
For discussion, please see Deflation Will Return: Europe First, Then US; Global Supply Arbitrage.
Mike “Mish” Shedlock