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The Forum > Article Comments > Is the return of inflation the cost of coping with covid? > Comments

Is the return of inflation the cost of coping with covid? : Comments

By Keith Suter, published 25/11/2021

Inflation has not been around in western countries for some decades but now there is concern that inflation could return. Governments are printing unprecedented sums of money to pay for COVID recovery plans.

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'Can we trust governments with money?'. We all know the answer to that.
Posted by ttbn, Thursday, 25 November 2021 7:45:25 AM
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Inflation comes with Australians spending more money overseas once travel is on again & then expect the Welfare system to bail them out when they they return broke !
Posted by individual, Thursday, 25 November 2021 9:17:14 AM
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"Is the return of inflation the cost of coping with covid?"

Sort of but not exactly. Its the cost of the way the government chose to cope with the WuFlu. The coming economic woes weren't certain and could have been avoided had there been a different approach.

The government and the lockdown cultists are congratulating themselves on what they consider a success. I suspect Australians and governments 5 or 10 years hence won't see it quite so rosily.

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In a long essay about inflation and the history and causes thereof, the words Milton Friedman aren't used. Judge the quality of the thinking on that alone.
Posted by mhaze, Thursday, 25 November 2021 10:34:19 AM
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What Keith has missed or ignored is that inflation is all in local products, housing & food.

A house I bought in 1965 for $5000, a bit under 5 years average salary will today coat over a million, over 10 years salary. However my first new car a small/medium size in 1960 cost a thousand pounds, about a years average salary, compared to the same thing today for about $20,000.

Housing & mining are the only thing we still do, other than work, [ops get paid by], for the government. Once they discover how to import houses, there will be little left for us to do.

In the 60s I was servicing the raw material needs of 7 companies who made TV sets, & that was just in Sydney. I wonder where all those jobs went.
Posted by Hasbeen, Thursday, 25 November 2021 5:24:29 PM
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The postwar "economic miracle" happened despite, not because of, Bretton Woods, and was largely the result of more women entering the workforce.
And fiat currency doesn't mean "I command you to treat this sheet of paper as currency" but rather 'Though shalt pay tax in this currency'!

So is inflation returning? Possibly in the short term, as production was adversely affected by Covid and the government had (as a one off) to put significantly more money into the economy. But inflaton's easier to control now - the economy is more resilient because the wage share is lower, and it's more sensitive to interest rate movements because private debt levels are higher (so a movement of a tenth of a percent may now have the effect that a quarter of a percent used to). And the government can tighten fiscal policy if and when it needs to, without having to repeat the mistake of assuming it will ever have to eliminate its debt.

There are no signs of a Great Resignation in Australia, so there's no reason to expect excessive inflation. There are threats that COULD result in inflation that's difficult to deal with (such as a shortage of silicon chips) but nothing that's actually LIKELY to have that effect.
Posted by Aidan, Thursday, 25 November 2021 9:26:11 PM
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Inflation came at a time when the epidemic situation was not completely over, reminding me of the period after the Wall Street financial crisis. Stemming from the need to fight the epidemic, the government not only continued to maintain the loosening policy but also implemented large-scale financial relief packages. “Pumping money into the market” in exchange for growth can cost the country dearly, and inflation is a direct consequence.
Posted by Javierlason, Friday, 26 November 2021 2:44:48 AM
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