Why Should Economists Dislike Higher Inflation?
There are a lot of theories, but in general people don’t like disruptions, and rising prices cause a lot of them.
Causing disruption.
Photographer: Kevin Dietsch/Getty Images North AmericaWhy, exactly, is higher inflation so bad? That simple question stands as an embarrassment for the economics profession. We all feel that an inflation rate of 6.2% is undesirable, but we are not very good at explaining why.
It’s easy enough to use crude economic theory to show why inflation isn’t such a big deal. Money is what economists call “neutral,” or sometimes “super-neutral.” To oversimplify a bit, in the economic models a higher rate of price inflation will raise wages and prices in a broadly proportionate manner, leaving the outputs and employment patterns of the economy either unchanged or with only minor modifications.