Economics
Moderate Inflation
Moderate inflation refers to a gradual increase in the general price level of goods and services within an economy. It is typically characterized by a low to moderate annual inflation rate, often in the range of 2-4%. Moderate inflation can stimulate consumer spending and investment, but if it becomes too high, it may erode purchasing power and disrupt economic stability.
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6 Key excerpts on "Moderate Inflation"
- Nader Nazmi(Author)
- 2016(Publication Date)
- Routledge(Publisher)
1 Causes and Consequences of Inflation in Latin AmericaIntroduction
The purpose of this chapter is to offer a broad analytical overview of the existing literature on the causes and consequences of inflation, paying special attention to the Latin American experience in general and the Brazilian case in particular. In an attempt to analyze the genesis of the inflation problem in Latin America, we begin with a brief survey of inflation theories. Theories of inflation constitute such a voluminous literature that a complete treatment of the subject matter is beyond the scope of this book. Our analysis will thus be limited to aspects of these theories that are needed for understanding the Latin American experience with inflation and stabilization over the past two decades.Inflation refers to a general rise in prices and is usually measured as the percentage increase in some aggregate price index, such as the consumer or the producer price indexes, over a specific period of time. Alternatively, today's inflation can be defined as an increase in the relative price of goods today and goods yesterday. In order to expedite our discussion, we distinguish between four different types of inflation: "moderate," "high," "chronic" and "hyper." While different societies have different notions of Moderate Inflation, here we define it as very low to low annual rates not exceeding single digits. The United States' roughly 4 percent annual inflation and Ireland's 1.5 percent inflation are considered as moderate. High inflation usually refers to double-digit annual inflation rates, as has been the case in Chile (roughly 14.5 percent per year for the period 1990-93). Chronic inflation is associated with the bulk of the Latin American experience, where inflation rates are very high (double-digit monthly rates that do not exceed 50 percent) but do not reach hyperinflation levels. Following Pazos (1972), we distinguish between hyperinflation and chronic inflation by noting that the latter is usually of longer duration and lower intensity. Following Cagan (1956), hyperinflation is conventionally defined as monthly inflation rates in excess of 50 percent. It should be emphasized that these labels are adopted merely for descriptive convenience and are not meant to be universally acceptable or applicable.
eBook - ePubEconomics versus Reality
How to be Effective in the Real World in Spite of Economic Theory
- John Legge(Author)
- 2017(Publication Date)
- Routledge(Publisher)
6Inflation
Inflation occurs when the average prices of consumption goods and services rise without corresponding quality increases. Inflation has occurred at many times and for many reasons.A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth.— Milton FriedmanIn Chapter 4 above, I mentioned that economists generally find money an elusive concept, and so inflation becomes elusive squared. If money is a mere lubricant making barter easier, then the amount of it available, and the price of any individual item offered for sale, are second-order issues of no great importance. Keynes attempted to break this fixation with barter by focusing on the difference between the real wage (an arbitrary amount of money that suffices to buy a given basket of goods) and the money wage (a definite amount of money that may or may not suffice to buy the same basket of goods).Keynes noted that wages are nearly always defined in terms of money; payment in goods (“truck”) is actually illegal in Britain and other common-law countries, and has been since the early nineteenth century. Wages are, of course, the employer’s costs: and if prices rise while money wages do not, employers earn greater profits; conversely, if prices fall but money wages do not, employers will earn reduced profits and may even be forced into a loss. Keynes, and Irving Fisher before him, noted that loan contracts are practically always designated in money terms, and so employers who finance their business in whole or in part with borrowed money suffer a double squeeze if prices fall as a fixed amount of interest must be paid out of a diminished gross profit.
eBook - ePubPaper Money Collapse
The Folly of Elastic Money
- Detlev S. Schlichter(Author)
- 2014(Publication Date)
- Wiley(Publisher)
Monetary Regimes and Inflation, 21–30.9 . Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1963; ninth paperback printing, 1993), 93.10 . Statistics Bureau of Japan, www.rateinflation.com/consumer-price-index/japan-historical-cpi.php?form=jpncpi .11 . Friedman and Schwartz, A Monetary History of the United States, 15; see also Jesús Huerta de Soto, Money, Bank Credit and Economic Cycles (Auburn, AL: Ludwig von Mises Institute, 2006), 341.12 . Friedman and Schwartz, A Monetary History of the United States, 91.13 . James Grant, Money of the Mind (New York: Farrar, Straus and Giroux, 1992), 101.14 . Hans-Hermann Hoppe, “Theory of Employment, Money, Interest, and the Capitalist Process: The Misesian Case Against Keynes,” in The Economics and Ethics of Private Property: Studies in Political Economy and Philosophy, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), 145–146.15 . Please remember that this point refers exclusively to the issue of predictability. Moderate Inflation is still worse than moderate deflation for other reasons, namely, that Moderate Inflation requires constant money injections that in themselves are destabilizing, as discussed earlier. Here, we only compare Moderate Inflation, as advocated by today’s consensus, with moderate deflation on grounds of predictability for economic calculation.
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Chapter 6 The Policy of Stabilization
To begin the discussion in this chapter, we need to define the objective of a policy of price-level stabilization. The advocates of price-level stabilization and of central bank–controlled Moderate Inflation can have no objection to any moderate, trending, and therefore reasonably predictable changes in purchasing power, such as the secular deflation of commodity money. Their very own model entails just such on-trend purchasing power changes. What their system must achieve is to smooth out the potentially abrupt changes in purchasing power that may stem from sudden changes in money demand.
eBook - ePubCrash Proof
How to Profit From the Coming Economic Collapse
- Peter D. Schiff, John Downes(Authors)
- 2010(Publication Date)
- Wiley(Publisher)
Consumer price index, year-over-year change, 1997-2006. Even the government’s own highly flawed and greatly manipulated index revealed inflation was accelerating even as the government and Wall Street claimed that it was well contained. By the time the problem was partially acknowledged, the government’s response was too little and too late.Source: Reprinted by permission from David L. Tice and Associates (www.prudentbear.com ).WHAT INFLATION IS AND ISN’T
Inflation means expansion, in the same sense that a balloon expands when you blow air into it. In economics, inflation refers to expansion of the amount of dollars in circulation, called the money supply. When new money or credit is added to an economy, thus diluting the existing supply, the general level of prices (aggregate prices) will rise, assuming the amount of goods and services within the system stays the same. But understand the distinction: The money supply expands and contracts. Prices go up and down. Inflation and price increases are not the same thing. One is cause. The other is effect.The reason that expansion of the money supply causes aggregate prices to rise is simple. As the supply of dollars grows relative to the supply of goods, more dollars are needed to buy a given quantity of goods. In other words, the dollar’s value is diminished relative to the goods available for sale. It’s basic supply, represented by sellers, and demand, represented by buyers. Any kid who collects baseball cards understands it. The more a particular card is in circulation, the less it is worth. The value of a card is a function of its scarcity. The more abundant the supply, the less something is worth. The same holds true for money.HOW INFLATION CREATES ARTIFICIAL DEMAND
So inflation is monetary expansion or, in other words, more money chasing a constant or diminishing supply of goods and services. It doesn’t have to be physical dollars added to the supply of money. It can just as well be expanded credit. Anything that artificially increases aggregate demand for goods and services is inflation. Printing money
eBook - ePubGetting the Measure of Money
A Critical Assessment of UK Monetary Indicators
- Anthony J. Evans(Author)
- 2018(Publication Date)
- London Publishing Partnership(Publisher)
4 P: The hidden inflation of the Great ModerationSummary of key points- Level targets have a stronger economic rationale than growth targets (such as inflation) but the Bank of England currently operates more of a hybrid.
- The Bank of England fan charts are flawed and less attention should be paid to them. Index-linked contracts are an imperfect way to protect against inflation because inflation entails relative price changes, as well as a fall in purchasing power.
- From 1999 to 2006, the Consumer Prices Index (CPI) systematically underreported the inflationary pressure in the UK. A rudimentary impact summary estimates the effect to be approximately 5.87 percentage points. More attention should be given to indices that include asset prices.
- While inflation is always and everywhere a monetary phenomenon, it is not necessarily always a consumer price one.I shall try to show that (a) the price level is frequently a misleading guide to monetary policy and that its stability is no sufficient safeguard against crises and depressions, because (b) a credit expansion has a much deeper and more fundamental influence on the whole economy, especially on the structure of production, than that expressed in the mere change of the price level. The principal defect of those theories is that they do not distinguish between a fall of prices which is due to an actual contraction of the circulating medium and a fall in prices which is caused by a lowering of cost as a consequence of inventions and technological improvements.
According to conventional wisdom, inflation was low in the years leading up to the financial crisis. However, this chapter argues that there was more inflationary pressure than is commonly accepted, and tries to reveal some of it. Indeed, the problem wasn’t merely a faulty inflation indicator, but also the fact that inflation was being targeted in the first place. The UK adopted inflation targeting in October 1992 and it coincided with a lengthy period of low and stable inflation, low interest rates and stable GDP growth. In May 1997 the incoming Labour government decided to make the Bank of England independent, and from June 2008 the Monetary Policy Committee (MPC) was given authority to make monetary policy decisions. Its independence was only operational, however, since they were given the task of hitting an inflation target and limitations over the tools at their disposal.
eBook - ePub- Paul Mattick(Author)
- 2017(Publication Date)
- Routledge(Publisher)
2 Deflationary InflationIt is popular nowadays to distinguish between the inflation of time past and a new kind of inflation, which accordingly requires a new explanation, although in its monetary aspects inflation has the same features now as before: rising prices or the diminishing buying power of money. While its opposite, deflation, was viewed as contracted demand resulting in falling prices, inflation was explained by insufficient supply, driving prices up. Since, however, in this view it is the commodity market that determines price formation, little attention was paid to monetary policy. Money was seen merely as a veil concealing real processes, obfuscating them but altering little in their essential nature.This theory was also accompanied by the illusion, still lingering today, that the quantity of money in circulation in the economy has an important influence on commodity prices and that price stability depends on an equilibrium between the quantity of money and the total volume of goods. The modern advocates of the quantity theory of money also attribute deflation and inflation to a too slow or too rapid growth in the supply of money, and as a remedy to these anomalies they propose the creation of money adjusted proportionally to actual economic growth.Thus in money theory the economic cycle is represented as an expansion and contraction of the money supply and of credit not commensurate with the real situation. But it was expected that the equilibrium mechanism of the market would ultimately steer things back to normal. The crisis of the thirties, however, which seemed to have taken hold for good, put an end once and for all to any notions of such an automatic self-establishing equilibrium. In Keynes's view, which dominated bourgeois economic theory in the years that followed, the laws of the market were no longer capable of bringing about economic equilibrium with full employment. A developed capitalist economy, claimed Keynes, made for a decline in effective demand and with it a fall-off in investments and growing unemployment. Although this theory was designed specifically to explain economic stagnation during the period between the two world wars, it was quickly given universal status and regarded as the last word in the science of economics; to avoid the deflationary state of the depression and to restore economic equilibrium with full employment, state measures were needed to stimulate overall demand.
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