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Ireland needs some inflation

Wednesday, October 17 08:59:04

A central problem afflicting the Irish economy is that housing construction has been far below any historical norm for more than five years now. That will not change until developers see rents rising (which is happening) and would-be homeowners start to see buying a home as a steal relative to renting the same home (which may be starting to happen). We also need the current overhang of properties to be taken up and removed from the market.

For this to happen buyers need to feel assured that prices will rise and not fall and a little inflation is good for that ailment also.This kind of inflation is good for the economy in the long-term although painful on renters in the short term. For both of those trends, higher owner-equivalent rents help speed the process toward new building development, so higher levels of inflation may get the economy closer to happier days.

The other beneficial aspect of inflation is that the real value (burden) of Irelands debts declines when inflation is higher. What we need therefore is inflation, not just general inflation but these particular kinds which will help us out of our current situation by kick starting the housing market and by reducing the real value of our national debt.