February 13, 2011

Tuning down inflation

Falling into deflation or stagflation has always been one of the greatest fear for politicians, economists and enterprises. A negative inflation rate theoretically means less money is available, in turn that means less credit and everybody knows what that means in a debt-dependent world like ours. Also deflation is correlated with lower prices, which people tend to associate with depressed economic growth. Whether one agrees with this affirmation or not, during last year's credit crunch it made some sense to be fearing deflation and its consequences,  thus no one worried about currency devaluation and general credit easiness to avoid it all costs.
Now, after the crunch is mostly forgotten and credit channels work again as normal, it begins to look like a flagrant excuse to keep interest rates at all-time lows and to support the worrying commodities rally. 

Strangely, some economists are still asking for a moderately higher inflation as a way to increase competitivity and as a way to cut salaries inadvertently (you cannot lower them without complaints, but you can make them effectively lower by increasing inflation) to boost employment. Everybody knows how to raise inflation, what is difficult is controlling its raise. Raising inflation when official levels are well under 4% would no be a problem by itself, the issue here is that official inflation levels are all wrong.

February 3, 2011

Davos tells the world to be optimistic, the world does not care.

The one-word conclusion one could take from the Davos' World Economic Forum (WEF) 2011 meeting from last week would be "Optimism" because that was what every big corporation CEO and every government leader were continuously saying, but everybody knows saying something a lot of times does not make it more real than saying it for the first time. 
For sure this optimism cannot be based on the Global Risks 2011 report that the World Economic Forum published because the data shown there is quite worrying. Let us have a quick look at this data.