A Primer on Inflation

Abstract

Publisher Summary This chapter discusses the present state of knowledge about the phenomenon of inflation. It presents a definition of chronic inflation as a condition in which price increases of more than 20% per annum have been typical over an extended period. It turns out that only four countries—Argentina, Brazil, Chile, and Uruguay—meet that condition during the period since 1950. The close contenders are Iceland—with four consecutive years of inflation over 20% in 1973 through 1976—Paraguay with three years of over 20% inflation in 1954 through 1956, and Yugoslavia. There is a close relationship between the rate of inflation and the rate of increase in the money supply. The rate of monetary expansion tends, even in these chronic inflations, to be greater than the rate of increase of prices. If the amount of real purchasing power that is held in the form of cash is to increase through time, the money supply must rise more rapidly than the price level.

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