Together with unemployment, inflation is undoubtedly one of the most important socio-economic ills. Inflation, or increase in the general price level, is accompanied by monetary depreciation. As everything becomes more expensive, you buy less and less with the same 100 euro note.
Stable price level until WWI
Historically, periods of inflation have been much more frequent and longer than periods of price stability or price decline. Only the nineteenth century was characterized by price stability. Until the early years of the last century, the price level remained approximately at the same level. But it was the two World Wars that gave a strong impetus to inflation, while from the late 1960s onwards a striking acceleration of the inflation rate can be observed.
High inflation accompanied by large increases in prosperity
From 1914 to 2000, the general price level rose by about 150%, indicating a massive reduction in purchasing power . This does not alter the fact that real prosperity has increased very sharply in the same period. While prices are 150 times higher than in 1914, wages and salaries over the same period must be multiplied by 750. The real effect of this nominal income improvement in terms of purchasing power is a factor of 5. In other words: our prosperity will have increased in 85 years. increased fivefold despite 150% inflation. Some economists even argue that inflation has fueled this increase in prosperity because it is often accompanied by significant economic activity.
Current inflation threat: saving is financial suicide!
According to some analysts, the current inflation is of a completely different order than that we have known so far. The clearly noticeable increase in inflation since 2011 should provide a solution to the immense problem of sky-high government debts, a problem that can no longer be solved in an orderly manner. According to the analysts in question, anyone who only owns paper money is committing political suicide.
Explosive increase during oil crisis
But even in the not so distant past, the Western world had to contend with exceptionally high inflation. When the oil sheikhs turned off the oil taps in November 1973, extraordinary inflation occurred, with annual inflation rates reaching double digits , ie exceeding 10%. In 1974, for example, inflation in our country was approximately 15%. With such a price increase, it is no exaggeration to say that the money in your wallet is one of the most volatile substances.
Inflation typical of boom times
In most economics textbooks, inflation is regarded as a distinctly cyclical phenomenon, inherent in a boom period . The boom, an overheating of the economy, is usually followed by a period of decline, the boom, with possibly a depression and a recession. In the past, and especially during the great crisis of the 1930s, such a phase of economic decline was accompanied by a decline in the general price level. Such a decline is called a deflation . From this cyclical perspective, inflation and deflation are the inevitable phenomena of an up and down economy, respectively. But it also sometimes happens that economic stagnation is accompanied by persistent price increases. This was the case, for example, after the first oil crisis in the 1970s. The events of the 1970s also showed that inflation can be extremely persistent. Inflation then acquires a structural character due to permanent causes . The reverse oil shock, ie the enormous drop in oil prices, together with the collapse of the dollar exchange rate from 1985 onwards, caused inflation to drop sharply, from more than 10% to 1%. But clear growth was noticeable again from 1988 onwards.
Current inflation expectations
By establishing an emergency fund to provide assistance to weak EU partners in early May 2010, the ECB appears to be giving up its role as guardian and opponent of the financial and political ambitions of politicians. It appears that Mr Trichet has allowed himself to be made an ally of the debtors. Until recently, the ECB was a predictable and reliable rock, but that predictability has now somewhat disappeared. And anyone who breaks a taboo once will not shy away from repeating it. It therefore appears that containing inflation within the eurozone will from now on be secondary. my view on