Economics

In the News

Is double digit inflation a relic of the past?

Graham Watson

16th May 2021

Larry Elliott reflects here upon the threat of inflation, arguing that hawks forecasting uncontrollable, double-digit inflation seem not to have moved with the times.

He argues that inflation targeting and different inflationary expectations make overheating, and the associated inflation, unlikely and that instead we should be focusing on the fact that inflation needn't be a bad thing.

Indeed, it might be worth revisiting the costs of inflation and highlighting those circumstances in which controlled inflation is a good thing.

Remember, the inflation target in most countries isn't 0% for many reasons - and at the moment, with a surge in government borrowing, higher inflation reduces the real value of government debt, so that might be considered a benefit too.

Background

The latest US inflation figures have seen inflation pick up from 2.6% last month to 4.2% this - and sparked fears of a sustained period of inflation for some.

The United States Federal Reserve (central bank) however, is more sanguine, arguing that inflation will, temporarily, be high as a result of some things fall out of the twelve month rolling average, and other things pass through, and some of this may be attributed to President Biden's stimulus package.

It's very much one of these pivotal moments - which way is inflation headed, and if it remains above the Federal Reserve's target, to what extent is this problematic in the present circumstances?

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