FATT - Inflation Conflation: An Economic Chicken/Egg Question

• On one hand, prices that are falling too quickly have the potential to hurt purchasing power by raising the real value and servicing cost of liabilities. On the other, prices that are rising too quickly can hurt purchasing power by reducing the real value of income.
• Growing demand or expanding investment are typically supportive of quality-of-life improvements. More debatable though is a theory that inflation proponents often peddle, stating that higher levels of inflation foster growth and incentivize expansionary investment.
• Policy should be set with an understanding of where demand is and can be durable, rather than on managing temporary swings.

For further details see: