First World Problems

We are advised to Ignore deflation fears, and make the most of the extra pounds in our pocket, presumably by driving somewhere to buy loads of stuff on credit.


This onset of deflation has been largely attributed to the falling oil price. According to politicians, deflation has absolutely nothing to do with QE, excessive debt, peak oil or demand destruction, and it will be a very brief and contained phenomenon.

In the 70’s we had stagflation, now we have joyflation: the combination of the oil-driven slowdown in inflation and accelerating economic growth.

As the Spanish finance minister put it recently, “deflation is like cholesterol”.

Yes, that is a genuine quote. You see, there is good deflation, and there is bad deflation. And Spain is, of course, suffering exclusively from the good kind of economic cholesterol. Because of the falling oil price, which acts like a probiotic elixir that magically boosts the monetary metabolism of sclerotic spanish consumers everywhere.

All glibness aside, no amount of joyflation will stimulate growth when you are also gorging on too much sugary processed debt, like a bankrupt bulimic. Spain’s govt debt to GDP is set to top 100% any day now. Whilst not as corpulent as some, it is still morbid economic obesity.

Since painflation only happens in the benighted, less deserving elsewhere, we would do well to heed the exhortations from learned economists to spend this tax cut so generously granted by oil exporting countries. If the wild girations of recent years are anything to go by, the oil price won’t stay very low for very long.

But is the oil price really the cause of all this joyous flation, or simply another symptom of a much deeper malaise? One thing is for sure; when deflation can be so insouciantly reclassified, redefined and denied, then it must be serious.

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