As uncertainty about economic growth seems to have replaced inflation as investors’ main concern, Alberto Matellán, chief economist at MAPFRE Inversión, one of Spain’s largest insurance groups, has warned investors that they shouldn’t lose sight of rising prices, which are far more damaging to the economy than weak economic growth.
“Low growth is doing less social damage than inflation,” he said, which is why the focus should first be on containing price rises.
“Taking care of inflation first and growth second is the right way to go about it. Doing it the other way around means the benefits of improved growth are diluted by inflation,” he added.
As far as stagflation goes, the chief economist stressed that it, while not impossible, it’s usually a short-lived scenario, as weak growth drives prices down.
This week it was reported that the US consumer price index (CPI) in April came in at 4.9%, down from 5% in March. Matellán downplayed the importance of whether the inflation rate is one tenth above or below the previous month: what is important is the trend, which in turn determines the course of action taken by central banks.
“A single data point on its own provides little information. What matters is the trend,” he said.
Inflation in Spain is forecast to reach 2.6% in 2024, much closer to the target level of 2%. Matellán considers that level as viable, but recalls the volatility of these data, as they depend on variables such as energy and food prices, which fluctuate considerably.
This drop in the inflation rate in Spain may not be seen in other countries. This week the German CPI for April was also released, and stood at 7.2%, higher than in other countries such as Spain (4.1%).
The European Central Bank (ECB) acts on the weighted average CPI across the euro zone, and not on a specific country, although Matellán acknowledged that some monetary policy may be too lax for some territories and too aggressive for others.
Is banking out of danger?
The European banking sector seems to have moved on from the turbulence experienced in March, when the collapse of Silicon Valley Bank (SVB) dragged down Credit Suisse, which was taken over by UBS.
Although it’s premature to say that European banking is out of danger, it is in a better situation than it was a few weeks ago, and also fares well when compared to US banking scene. In addition, Matellán stressed that Q1 earnings were well received.
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