Inflation seems to be a relatively new thing in economics, only being a major concern since about 1940.
Looking at [this UK Currency graph](https://www.google.com/url?sa=i&url=https%3A%2F%2Fmonevator.com%2Fa-history-of-uk-inflation%2F&psig=AOvVaw2m1_C7lFBlK_s-ePJDySaV&ust=1691140545682000&source=images&cd=vfe&opi=89978449&ved=0CBAQjRxqFwoTCOCx8s2TwIADFQAAAAAdAAAAABAJ) or [this US graph](https://images.squarespace-cdn.com/content/v1/50060e33c4aa3dba773634ec/1464789250138-XL20G32RKBAYP87JGP74/image-asset.png), inflation/deflation was not a continuous thing until the modern era.
Is this because of fractional reserve banking, or constant government deficits in both countries? Or both? What changed in economic policy – perhaps the funding required for modern government programs?
Or perhaps this effect isn’t as new as I perceive – at least in the case of the United States. [This graph](https://upload.wikimedia.org/wikipedia/commons/thumb/2/20/US_Historical_Inflation_Ancient.svg/1200px-US_Historical_Inflation_Ancient.svg.png) shows inflation and deflation to be evident in the past, but they balanced: so why don’t they now?
Surely an idealised society wants very little inflation, maybe around 0.5%, just enough to allow for debt to deflate and ‘incentivise investment’, but nowhere near as much as today’s salary-eroding amounts.
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Your own graph tells the story. The US inflation rate has already peaked and is on the decline.
The peak in 2022 was NOWHERE near the peaks of the 70’s and 80’s (going back 200 years is not really useful comparing an agrarian economy where booms and busts are mostly due to the weather that year affecting food production).
The Fed (and many central banks) were trying to INCREASE inflation (not really but ELI5) for most of the 2010’s.
One of the issues is that most people under 40 today have actually never experienced anything resembling inflation of the past. And 6 months of it being elevated in 2022 and they feel that the world is crashing down on them.
What you think of as “salary eroding” would be considered mostly average 40-50 years ago.
Pre-WWII, most industrialized societies operated (more or less) on an inflationary/deflationary cycle–much like the last graph you posted. (Although I’d note that the further back we go, the less accurate those graphs can be–especially since a codified, universal currency for the US didn’t exist the first third of that graph.)
But they didn’t call them “recessions” back then, they called them “panics” because, quite frankly, deflation is *bad*. We don’t want that. We don’t want “balance” because that means people suffer as much as they prosper. So every green spike on that graph meant people generally suffered.
(To put it in Eli5 terms, by targeting inflation we do reduce our prosperity–but not by *that* much. The amount of prosperity we sacrifice is nowhere *near* the deflation we would get otherwise, so the tradeoff on net is absolutely worth it.)
With changes in monetary policy after central banks became the norm, the tradeoff settled on having a consistent but small amount of inflation–the target for most nations is roughly 2%. Any lower than that and we risk deflation.
Traditionally, inflation peaked around wartime as a government debased its currency (think: money printing) to wage the war. Then after the war, the government would repeg the currency, pay down the debt, and deflate. Prices would stabilize if not decrease.
In the era of modern central banking (creation of the Fed on your graph) inflation is the express policy.
Fractional reserve banking is major tool in this endeavor and contributes to the credit-fueled booms and eventually results in the contractionary busts.
What changed? There was a revolution in economics by Keynes in the WW2 era such that modern central banks now view consumption as the backbone of an economy. Thus, any time there’s economic trouble, the “solution” is lower interest rates, credit creation, and money printing, to cause people to spend more money, causing prices to increase even further.
In the 1500s, Spain brought back so much silver and gold from the New World that it triggered inflation throughout Europe. So it’s definitely been around before. In the past there were ‘panics’ and runs on banks during economic crises.
Today, specifically, because people were given so much free cash during covid. Infrastructure Bill, PpP, student loan deferment, lower rates, covid unemployment checks, Medicaid, food stamps, etc … more buying power means more demand means more competition means higher prices.
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