Governments Love Inflation, and They Won’t Do Anything to Stop It
No government looking to massively expand its size in the economy and monetize a soaring deficit is going to act against rising prices, despite claiming the opposite.
One of the things that surprises citizens in Argentina or Turkey is that their populist governments always talk about the middle classes and helping the poor, yet inflation still soars, making everyone poorer.
Inflation is the gradual erosion of the purchasing power of the currency. Governments will always use different excuses to justify inflation: soaring demand, “supply chain disruptions,” or evil corporations’ greed. However, most of the times these are excuses. Inflation is always a monetary phenomenon. Prices soar because money supply rises massively above real output and real money demand.
How can there be “shipping bottlenecks” driving a 100 percent rise in freights when the shipping industry was burdened by massive overcapacity in 2019? How can anyone say that natural gas and oil have soared due to supply chain disruptions when supply has perfectly followed demand? The reality is that some of those factors may explain a small proportion of the price rise, but the Global Food Index and Bloomberg Commodity Index are not at multiyear highs due to these problems.
What happened in 2020 was that massive money creation in the middle of an economic lockdown created monetary inflation in nonreplicable and relatively scarce goods and services. Why did this not happen before?
Well, it did. Before, we saw a massive rise in asset prices. Inflation is created where the excess of money goes, be it soaring equity, and high yields in bond markets or all-time high housing and private equity valuations. More money chasing the same number of goods. Fur
Article from Mises Wire