Project Syndicate: Silent Inflation

Central banks manage inflation for stability, and Yale economics professor Robert Shiller describes the challenge of “silent inflation” – the practice of central banks setting inflation targets ranging from below or near 2 percent for Europe, the United States and Japan to 13 percent for Egypt. “Such policies cause a sort of magnification of the present in the minds of most people,” Shiller writes. “If one is not careful to remember the effects of inflation on all prices, it might seem that we are living in a magnificently successful new era…. But sometimes there is a bit of fakery in the record, especially when the record is described in nominal terms and we have steady inflation.” He notes that most major economic indicators are reported in real terms and not corrected for inflation. At lower rates, inflation may not attract public alarm, yet reduces values over the long term. For example, in the United States, today’s $1 million was worth less than $120,000 in 1960. Earning he equivalent of $25,000 from 1980 requires three times as much today. Such trends can make some debt alluring, Shiller explains, and he suggests that inflation’s eroding effect should be kept in mind when assessing values of homes, wages or retirement over the long term. – YaleGlobal

Project Syndicate: Silent Inflation

Inflation-targeting is supposed to reduce price uncertainty, but keeping a target of 2 percent or more can heighten uncertainty about home or investment values
Robert J. Shiller
Sunday, December 2, 2018

Read the article from Project Syndicate about inflation’s effects.

Robert J. Shiller, a 2013 Nobel laureate in economics, is professor of Economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

Compare inflation’s effect on prices since 1913 with the US Inflation calculator.

Copyright © 2018 Project Syndicate

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