Low inflation concern continues in Europe
The Euro-zone inflation rate rose less then expected for April at a pace of 0.7%. It was expected, or hoped, to rise to 0.9%.
Germany’s inflation rate stayed low at 1.1%, which makes cost adjustments more troubling for the periphery countries of Europe like Spain and Greece.
Finding a cure for low inflation is imperative just like finding a cure for inequality.
The knee-jerk response to lower inflation is to lower nominal rates and increase Quantitative Easing. Sooner or later Europe and other advanced countries will have to channel liquidity more broadly to society than just the financial sector. And if the Fisher Effect is stable this time, then lowering the nominal rates will be counter-productive.
Now we wait for the inflation data of the United States.
Would it be more important to be worried about nominal growth or real growth than inflation? Low inflation only seems a problem if growth is low. If growth is high you would worry about inflation right?
Or are they worried about a “deflationary spiral”?
With regard to channeling liquidity to boader society here’s a brief proposal on how it can be performed if anyone is interested: cmamonetary.org
Db2b,
They are really not worried about a deflationary spiral, just low inflation. However, a worry is that if the economy slides into a recession with such low inflation, a deflationary spiral because a possibility.
A problem is that low inflation makes debt more burdensome. But if you agree with Michael Hudson, the goal of capital is a debt peonage upon the general population, then low inflation reflects the process to debt peonage.
Growth is muted because effective demand is weak. Inflation is low because effective demand is weak. The economy is lethargic.
Most economists are waiting for wage inflation to save the day. They don’t seem to realize that there are still pressures to push wages lower from global competition. and weak effective demand creates higher unemployment which lowers power to bargain higher wages.