The inflation is measured by the median CPI changes as explained in the note and indicates that it still is within the 2-3% boundary. Accordingly, standard CPI changes would have been indicating some large changes in relative prices via increased nominal prices, that is, greater noise than usual.
and I think you should discuss it. It's a good attempt to go through alternative ideas advanced to explain the new concern about inflation (the final paragraph quotes Alan H. Guth who has pioneered the theory of cosmic inflation to make clear how difficult is to be persuasive about any particular theory of economic inflation).
All true, but there are fixes to mitigate the worst aspects and OTOH a bit of inflation does help relative prices adjust if some prices are sticky. Low inflation is close to Natalia but a little better because of sticky prices. And small negative deviations (most of 2008-2020) are probably worse than small positive deviations.
Chile is the closest country to Neutralia. Since 1967, the UF has been the inflation-indexed unit of account about which Robert Schiller wrote a quite favorable assessment years ago for a conference organized by Chile's Central Bank (https://core.ac.uk/download/pdf/6360154.pdf). How relevant has it been to mitigate the cost of most of the distortions usually associated with inflation, and especially with high inflation? Hard to say because in the past 54 years Chile has gone through 3 periods of inflation: the first one (1967-1975) was the time of high inflation, very high inflation, and a threat of hyperinflation, in which the inflation tax was needed to finance the government deficit (the UF was good for all types of short and long-term contracts, but the financial system was quite small); the second one (1976-1985) inflation continued to be high and unstable although the government had reduced its deficit to zero (in my view, the UF was an obstacle to reducing inflation quickly in 1976-81 but then the government had to finance a large deficit because of the 1982 private-debt crisis); and the third one (since 1986) has been low and stable to the point that there has been some talk about eliminating the UF. In my view, the large expansion of the financial system since 1986 has been a major reason not to eliminate it, and today is a minor concern.
Yes, the press misses the main points that economists usually make about the distortions created by reliance on the inflationary tax and the costs of these distorsions. Most economists, however, miss the main reason why people think inflation is costly: the time spent in determining changes in relative prices and how they should respond to changes to minimize their frustrations. In countries where governments rely on the inflation tax "a la Argentina" to finance expenditures, inflation may become quite variable and imply large changes in relative prices (starting with the exchange rate and wages).
Enjoy it, Arnold. Following a hint from your dear Tyler Cowen, I have found this note from the Fed/Cleveland
https://www.clevelandfed.org/our-research/indicators-and-data/median-cpi.aspx
The inflation is measured by the median CPI changes as explained in the note and indicates that it still is within the 2-3% boundary. Accordingly, standard CPI changes would have been indicating some large changes in relative prices via increased nominal prices, that is, greater noise than usual.
Arnold, I have just read this
https://www.zerohedge.com/markets/answering-64-trillion-question-new-grand-unified-theory-inflation
and I think you should discuss it. It's a good attempt to go through alternative ideas advanced to explain the new concern about inflation (the final paragraph quotes Alan H. Guth who has pioneered the theory of cosmic inflation to make clear how difficult is to be persuasive about any particular theory of economic inflation).
All true, but there are fixes to mitigate the worst aspects and OTOH a bit of inflation does help relative prices adjust if some prices are sticky. Low inflation is close to Natalia but a little better because of sticky prices. And small negative deviations (most of 2008-2020) are probably worse than small positive deviations.
Chile is the closest country to Neutralia. Since 1967, the UF has been the inflation-indexed unit of account about which Robert Schiller wrote a quite favorable assessment years ago for a conference organized by Chile's Central Bank (https://core.ac.uk/download/pdf/6360154.pdf). How relevant has it been to mitigate the cost of most of the distortions usually associated with inflation, and especially with high inflation? Hard to say because in the past 54 years Chile has gone through 3 periods of inflation: the first one (1967-1975) was the time of high inflation, very high inflation, and a threat of hyperinflation, in which the inflation tax was needed to finance the government deficit (the UF was good for all types of short and long-term contracts, but the financial system was quite small); the second one (1976-1985) inflation continued to be high and unstable although the government had reduced its deficit to zero (in my view, the UF was an obstacle to reducing inflation quickly in 1976-81 but then the government had to finance a large deficit because of the 1982 private-debt crisis); and the third one (since 1986) has been low and stable to the point that there has been some talk about eliminating the UF. In my view, the large expansion of the financial system since 1986 has been a major reason not to eliminate it, and today is a minor concern.
Yes, the press misses the main points that economists usually make about the distortions created by reliance on the inflationary tax and the costs of these distorsions. Most economists, however, miss the main reason why people think inflation is costly: the time spent in determining changes in relative prices and how they should respond to changes to minimize their frustrations. In countries where governments rely on the inflation tax "a la Argentina" to finance expenditures, inflation may become quite variable and imply large changes in relative prices (starting with the exchange rate and wages).