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LIVING IN INFLATIONARY TIMES

The Inflationary Tide That Lifts all Boats but One

The Inflationary Tide That Lifts all Boats but One
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· Central banks do not keep the value of money stable

viernes 13 de septiembre de 2019, 10:39h
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In most countries around the world, inflation, when measured as an increase in the prices of consumer goods over time, appears to be relatively tame when compared to, say, the 1970s and 1980s. However, even a rise in consumer prices of around 2 per cent per year – which is what most central banks these days seek to deliver – is inflationary, as it means that the purchasing power of money declines over time. If prices rise by 2 per cent per year, the loss in pur-chasing power after ten years amounts to more than 16 per cent, after 20 years to more than 31 per cent.



In other words: We still live in inflationary times. Central banks do not keep the value of money stable. On the contrary. Central banks’ monetary policies con-stantly seek to diminish, to erode the purchasing power of money – even though such a monetary policy is officially termed “a policy of price stability”. The public at large is tricked by such words. People are made to believe their money balances keep their value over time, but in fact they do not. What is more, inflation – the increase in prices of goods and services – is not properly measured by consumer price indices (CPIs).

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