Can inflation actually be fixed? Is there any hope? Or will prices just gradually keep increasing?
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Prices gradually increasing is ideal for a healthy economy, which is why most central banks have a target of something like 2% inflation on an annual basis, deflation or shrinking prices damages an economy. https://youtu.be/-dnKdCwCw8o
Prices will never stop rising, and that’s by design. Governments never aim for 0% inflation, because economists agree that *some* amount of inflation is always needed. Most governments instead try to have 2% YOY inflation to incentivize spending and disincentivize hoarding. Governments are usually pretty good at keeping inflation in the 0-2% range, so in that sense inflation is already fixed.
As other kind redditors have already illustrated that some little inflation is actually beneficial and preferable than 0% inflation, I will touch on your other point and hopefully explain.
Yes, inflation can be fixed but what we need is a monumental shift away from corporate greed and several global situations to resolve themselves. Prices are not high because wages are high, prices are high because there are factors such as opportunities in the market driving them high. Corporate profits are higher than ever because there are supply issues globally due to the after effects of Covid, the war in the Ukraine etc and also the instability of markets such as real estate in China and the gradual collapse of the Russian economy due to epic sanctions.
Europe has had to invest a lot of money recently in divesting in their energy security, away from Russia, which *was* driving prices up but they have relatively sensible governments and are taking appropriate measures to reduce inflation steadily. Their supply chains are becoming more secure and reliable post Covid.
Except the UK. That shit is just insane right now. Supply chains are broken, everything costs loads because of Brexit and bewilderingly low productivity in the economy and a housing crisis that is at real risk of blowing up into a full scale real estate meltdown.
The capital class who owns this modern economy want this type of economy to continue. And *deflation* risks destroying it — if prices gradually decreased year over year, the theory is people would hold onto their money longer, waiting for a better deal. Meaning reduced demand, meaning lower prices, around and around until this type of economy failed.
Many disagree this would be a bad thing.
The flow of new money into the economy can be slowed by increasing federal reserve interest rates, from which all money originates.
The surplus supply of money already in the economy can only be soaked up with the sponge of taxes.
The USD is a monstrous entity which is used in international commodities trading, corporate stock trading as well as personal transactions making it incredibly tenuous to market forces. Fiat currency is by definition unstable as it is not backed by a commodity but instead faith that the fiat holds value. This enables the Dollar to be used to transact at virtually unlimited volume, which a commodity based currency cannot do. As more dollars enter this system the value of each dollar decreases which alters the value proposition forcing all actors in the system to constantly adjust as market forces fluctuate with wildly increasing and decreasing commodity values. This is why recession is inevitable, eventually the value of the dollar becomes too low to maintain faith so the fed crashes the dollar to remove volume from supply thus increasing value and therefore faith in the value of the dollar.
ELI5: China wanted into the international trade order so Nixon changed the dollar to accommodate the expected volume increase. This move created the 1970’s financial crisis but once stability of the fiat was established it enabled the boom of the 1980’s and 1990’s as globalized commodity trading became more simple. HWBush and Clinton established the USD as the petrodollar forcing all nations too keep USD in reserve to continue purchasing petroleum, thus creating demand for the dollar, therefore increasing it’s value. This move caused the financial crisis of the late 90’s so to stabilize the USD WBush invaded Iraq and Afghanistan to eliminate competition and cement demand for the USD. This move caused nations to lose faith in the USD fearing America would prioritize it’s own control over the international trade economy over the stability of that trade order, this cause the GFC (2007). Obama enabled quantitative easing to enable his corporate donors to borrow unlimited money at little cost and Trump escalated this policy with his 2017 tax reform. COVID halted the global economy and demand for oil, thus reducing faith in the now massive volume of USD causing the crisis we are in right now.
Sorry, I’m bad at conclusions.
From 2010 to 2020, we had an average inflation rate of 1.73%. That’s very low. Inflation at that rate is pretty healthy for the economy.
In 2021 the inflation rate jumped to 7%. In 2022 it was 6.5%. These numbers are pretty high, especially compared to what we’ve had the last 30 years. It’s not as bad as it was in the 1970s, which was a really tough time economically. Inflation peaked in 1980 at 13.55%, which is crazy.
Dump trillions of dollars of government cash into the economy and this is what happens. Now arguably, that might have been the best available option due to COVID. But if you want prices to stabilize and quit going up, you’ve gotta go back to pre-COVID economic policies.
If you’re referring to short-term price spikes, as the USA recently experienced, then its possible. With the elasticity of supply and demand, prices will tend to wiggle around accordingly. Prices spike when supply bombs, and usually relax after supply returns. There’s been suspicion and examples of the most recent spikes being purely “Lets make things more expensive because we can”, but that’s another matter.
If you’re referring to the general institution of inflation, that everything (hopefully including wages) becomes more expensive over time, then the goal is actually to not fix it. Having a very moderate rate of inflation is considered healthy for an economy, with 0% inflation being considered “stagnant”, and deflation being considered dangerous
We don’t want inflation “fixed”, we want it moderated… inflation of about 2% is good to keep economy moving forward. We don’t want the 8-10% we’ve been seeing over the past year or two.
A small amount of inflation entices people spend today for fear of things costing more tomorrow, which keeps the economy moving and not stagnating. A small amount of inflation compels people to find productive ways to invest & grow their savings, allowing capital to make loans and fund business growth.
I have always wondered, if population growth became negative, would inflation become negative too? There would be situations like real estate, where suddenly there would be an oversupply.
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