Published: June 2023 In prior articles and newsletters, I’ve explored the causes of consumer price inflation over time. In short, the rate of consumer price inflation in an economy comes from a combination of 1) money supply growth and 2) significant changes in productivity and/or resource abundance. -Periods of fast bank lending or large monetized […]
  •  anji   ( @anji@lemmy.anji.nl ) 
    4•1 year ago

    Economists admit they don’t understand the causes of inflation, but they have some understanding why they can’t understand it.

    One of the main drivers of inflation is inflation expectations. If people (and investors, and companies, and countries, etc.) expect inflation and rates to go up, they will spend cash now instead of holding it. This itself of course drives inflation! And likewise if they expect inflation and rates to go down they’ll hold cash and and bonds instead of investing in securities which might devalue during an economic slowdown. This makes inflation a very fickle phenomenon which cannot easily be anticipated and planned for like other economic trends.

    •  button_masher   ( @button_masher@lemmy.ml ) 
      1•1 year ago

      Inflation… the known unknown.

      I find this (bit wordy) quote from “The Pretence of Knowledge” apt:

      In the explanation of the working of such structures we can for this reason not replace the information about the individual elements by statistical information, but require full information about each element if from our theory we are to derive specific predictions about individual events. Without such specific information about the individual elements we shall be confined to what on another occasion I have called mere pattern predictions

      Interesting read if severely bored someday… he also talks about how everyone has to claim to know something to try be useful. Think inflation falls into that category…