Inflation

It remains to be seen whether we’ll see a new peak in inflation (it’s unlikely). But a reversal of inflation declines shouldn’t raise an eyebrow. All you have to do is look at a long-term chart of inflation in the 70s and early 80s to see this clearly illustrated.

Let’s jump back to Curtin’s opinion piece from last spring:

Prices and wages will continue to spiral upward until the cumulative erosion in inflation-adjusted incomes causes the economy to collapse in recession…

This situation has been termed “inflationary psychology.”

Consumers purposely advance their purchases in order to beat anticipated future price increases. Firms readily pass along higher costs to consumers, including the future cost increases that they anticipate.

That’s what happened in the last inflationary age, which started in 1965 and ended in 1982: Expected inflation became a self-fulfilling prophecy.