Does high inflation matter?

Economists and the public have very different views on the question


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  • 04 22, 2022
  • in Finance and economics

IT STARTED INOECD America, but the surge in inflation has spread to the rest of the rich world. Consumer prices across the club of mostly rich countries are rising by 7.7%, year on year, the fastest pace of increase in at least three decades. In the Netherlands, inflation is nearing 10%, even higher than in America, while in Estonia it is over 15%. How forcefully should central banks respond to the inflationary surge? The answer depends on how much damage inflation is causing. And that depends on whom you ask.Inflation is regarded as costly because it erodes people’s savings and distorts price signals. And there are unquestionably instances when it has brought an economy to its knees. During Weimar Germany’s period of hyperinflation in the 1920s people’s savings evaporated, eliminating the middle class and paving the way for the rise of fascism. Inflation also spiralled out of control in Zimbabwe under Robert Mugabe. As price signals broke down, millions went without food.

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