Looming Threat of Future Inflation
Brigitte Granville explores the current state of inflation in Japan, Germany, and more broadly, highlighting the importance of central banks in addressing the pressing economic issues of our time.
Japan, despite setting a target of 2% inflation, has yet to reach this goal. The reasons for this are not explicitly discussed in this article, but understanding the Great Inflation that prevailed from the late 1960s to the early 1980s could offer valuable insights. The taming of the Great Inflation offers insights into the dangers that lie ahead in the economy.
Meanwhile, in Germany, high taxes are causing inflation in some cities. This underscores the complex and varied nature of inflation across different regions and countries.
The Great Inflation offers important lessons for addressing current economic issues. For instance, the Brazilian economic crisis in the 1980s, following a boom period, was marked by hyperinflation. The country managed to control inflation sustainably with the Plano Real in 1994, by introducing a new currency and strict fiscal discipline. Similarly, the hyperinflation crisis of 1923 in Germany, analysed by historian Volker Ullrich, provides lessons on political and economic stabilization efforts during the Weimar Republic and the broader implications for understanding inflation risks and economic crises.
It is crucial to avoid dismissing inflation as a "problem of the past". The resurgence of inflation could be facilitated if it is not taken seriously. The specter of inflation, as described in this article, is no longer what it once was, but its potential impact should not be underestimated.
Political leaders are focusing on the threat of debt deflation, which could lead to a depression. However, the global economy is currently facing numerous problems, with inflation not being a major concern. Understanding the Great Inflation aids in better comprehending the challenges that the economy may face in the future.
Central banks are working diligently to address these issues, but their efforts could be undermined if inflation is not given the attention it deserves. The economic malaise post-2008 was caused by excessive debt, and the threat of debt deflation remains a significant concern. The resurgence of inflation could exacerbate these issues, making it even more critical to approach inflation with a serious and informed perspective.
