Why Interventionist Governments Love Inflation, by Daniel Lacalle

If inflation is a tax, who collects it? Bingo, the government! From Daniel Lacalle at dlacalle.com:

No government looking to massively expand its size in the economy and monetize a soaring deficit is going to act against rising prices, despite claiming the opposite.

One of the things that surprises citizens in Argentina or Turkey is that their populist governments always talk about the middle classes and helping the poor, yet inflation still soars, making everyone poorer.

Inflation is the gradual erosion of the purchasing power of the currency. Governments will always use different excuses to justify inflation: Soaring demand, “supply chain disruptions” or evil corporations’ greed. However, most of the times these are excuses. Inflation is always a monetary phenomenon. Prices soar because money supply rises massively above real output and real money demand.

How can there be “shipping bottlenecks” driving a 100% rise in freights when the shipping industry was burdened by massive overcapacity in 2019? How can anyone say that natural gas and oil have soared due to supply chain disruptions when supply has perfectly followed demand? The reality is that some of those factors may explain a small proportion of the price rise, but the Global Food Index and Bloomberg Commodity Index are not at multi-year highs due to these problems.

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