If inflation lowers demand, would that not eventually offset inflation naturally without government intervention?
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That’s one of the possible outcome but people might also start using a different currency instead (e.g. what happened to Venezuela and Turkey).
At the end of the day, governments don’t want to lose control of their currency, as they would no longer be able to influence the economy with fiscal policy.
Inflation doesn’t lower “demand” so much as it lowers the “movement” of a product or the “sales” of a service.
So, people still need/want the good/service but are just waiting until the prices come down. Which probably will cause the prices to inflate again.
This question reminds me of the famous Keynes quote –
>The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.
Inflation becomes a vicious cycle when most workers see prices go up and then ask and receive wage increases. Prices go up, workers ask for raises. Companies grant the raises because they are selling their products for higher prices. Now it costs more in labor to make their products, so they raise prices again. Workers then ask for more raises. This cycle can only be broken by throwing cold water on demand through the central bank increasing interest rates.
As long as the government is collecting taxes, spending money and making policy there is government intervention.
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