Telemundo lies: low inflation is not a catastrophe, it is the only honest path to prosperity

A recent segment on Telemundo Uruguay raises with complete ease a question that should scandalize anyone with basic notions of economics: "Why is low inflation also a concern?". The headline explains that inflation is at 3.6%, below the 4.5% target, and warns that if it keeps falling there will be "less consumption, investment, and employment," in addition to higher "wage costs" and "less tax revenue" for the State.

This narrative isn't an innocent mistake. It is the perfect crystallization of the statist thinking that has poisoned public debate in Latin America for decades: inflation isn't an evil that must be eradicated, but a macroeconomic parameter that must be kept within an "optimal" range (normally between 3% and 5% annually) so that the machine keeps running. When it falls too much, the system panics. Why? Because the model structurally depends on the continuous depreciation of the currency.

Inflation isn't a lubricant of growth. It is a hidden regressive tax that operates through the silent expropriation of the purchasing power of monetary balances and fixed incomes. Each additional percentage point of persistent inflation transfers wealth from the agents who receive the new money last (wage earners, retirees, small savers, informal workers) to those who receive it first (the State, the financial sector with preferential access to expanded credit, large companies indebted in local currency). Anyone who claims that 3.6% inflation is "a concern" because the State collects less is confessing, unintentionally, that the Uruguayan treasury (and that of many neighboring countries) can't finance itself without systematically eroding citizens' incomes and assets.

Let us review the mechanisms through which low and sustained inflation near zero terrifies the establishment:

Effect on the State's real tax revenue

   The inflation tax (seigniorage) acts on the stock of monetary base and on balances in checking and savings accounts that don't earn positive real interest. When inflation falls from 8% to 3%, the State automatically loses several points of GDP in spending capacity without needing to issue more debt or raise visible taxes.

That explains the panic: it isn't that the economy "needs" inflation; it is that the State needs inflation to avoid cutting structural spending.

Illusion of consumption and unsustainable indebtedness

Persistent monetary expansion generates negative real interest rates that stimulate present consumption and indebtedness at the expense of future saving. When inflation falls and real rates become positive (or less negative), many spending decisions that seemed profitable stop being so.

The adjustment reveals the prior unsustainability. Calling that "less consumption" is a euphemism; the correct way to put it is: the distortion caused by artificially cheap money is corrected.

"Higher" wage costs in real terms

This is where one of the greatest hypocrisies lies. When inflation is high, nominal wages rise, but real wages stagnate or fall. When inflation falls, nominal wages grow less, but purchasing power rises because prices stabilize.

Saying that "wage costs rise" can only be understood from the perspective of the employer who benefited from the erosion of real wages via inflation. For the worker, by contrast, it is a net gain.

Fictitious "competitiveness" and exchange rate appreciation

   Systematically higher inflation than that of trading partners generates real devaluations that temporarily benefit exporters and protected sectors. When domestic inflation converges toward international levels (or falls below them), the real exchange rate appreciates if there is no compensatory nominal devaluation.

That "concerns" the sectors that lived off the implicit subsidy of monetary depreciation. But for society as a whole —which imports capital goods, inputs, and technology— a more stable and stronger currency is a genuine competitive advantage.

The specter of deflation

The final fallback argument is always the same: "if inflation falls too much, we enter deflation and everything comes to a halt." Genuine deflation caused by productivity growth (more goods and services with the same amount of money) is benign and has historically been compatible with enormous increases in real welfare (19th century under the gold standard, current consumer electronics).

Malignant deflation (Fisher's debt-deflation) arises when there is a massive credit contraction after an expansionary bubble. The solution isn't to maintain perpetual inflation; it is to avoid the bubble from the outset through strict monetary discipline.

Telemundo doesn't invent this narrative; it reproduces it because it is what almost all conventional economics faculties teach and what the region's central banks repeat. But reproducing it without questioning it is to contribute to perpetuating the greatest macroeconomic deception of the last hundred years: that a society can prosper by systematically eroding the money its citizens use.

The truth is simpler and harsher:  
- Inflation has no net advantages for society.  
- Each point of persistent inflation is stolen purchasing power.  
- Inflation close to zero isn't "a concern"; it is the symptom that monetary discipline is being restored and that saving and real wages are being protected.  

- If the State collects less with low inflation, the answer isn't to raise inflation: it is to drastically cut unproductive public spending.

Until the media stop presenting monetary stability as a problem and perpetual depreciation as a solution, we will remain trapped in the same cycle: issuance, inflation, devaluation, adjustment, issuance again. The way out is only one: sound money, a much smaller State, and unrestricted respect for the right of ownership over the fruit of work and legitimate saving.

Anything else is statism disguised as economic journalism.