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I can: you expect it, so you create it. Inflation can be psychological: the workers want to resist inflation, the unions block the factories, the factory leaders pressure the politicians, the central bank say now currency divided by 2, salaries expand, prices expand, everything expand, factories restart for another year. Look at how Brazil introduced their last currency, they understood this and had the balls to fix it. They created a virtual currency based on a fixed usd rate, they pretended was just for reference and printed prices in it for salaries, products etc with a floating rate against the normal currency refreshed everyday. People start to wrap their brain around having the shit currency with exploding inflation AND everything priced in a stable, trusted reference point. Then, they rug pulled the old currency and said "now this virtual currency is the real one, here are the banknotes, good luck", and it held because people did not expect that one to inflate all the time. It's simplified but do not imagine nobody understand Argentina's situation: the only ones not understanding are the people there, unwilling to bear the cost of stabilizing and instead forever running away demanding their salaries expand to "resist inflation" when it is the very inflation they try to fight. Each time I hear a little guy in a country saying he expect his x% raise because of inflation (and not, say, results), I know it's a red flag. People should not try to all virtually raise their salary, or what do they expect will happen ? Their salary will change not at all, but the currency will magically be worth less: after all, they did nothing special to deserve more. |
One's previous life experiences also flavour perceptions of inflation. The Odd Lots podcast had an interesting episode a little while ago:
> Inflation is running hot these days. But, even when the official measures were considerably cooler, there were many people who were skeptical and insisted that inflation was running hot and rampant. It turns out, nobody really experiences inflation similarly, and one's own consumption and behavioral patterns will have a big impact on their outlook. On this episode, we speak with Berkeley professor Ulrike Malmendier, whose work has shown how one's behavior (where you shop) and history (what conditions were like earlier in your life) can inform views and perceptions of inflation for years.
* https://player.fm/series/series-1504378/why-everyones-experi...
Paper referenced:
> How do individuals form expectations about future inflation? We propose that personal experiences play an important role. Individuals adapt their forecasts to new data but overweight inflation realized during their life-times. Young individuals update their expectations more strongly in the direction of recent surprises than older individuals since recent experiences make up a larger part of their lives so far. We find support for these pre- dictions using 57 years of microdata on inflation expectations from the Reuters/Michigan Survey of Consumers. Differences in life-time experiences strongly predict differences in subjective inflation expectations. […]
* https://eml.berkeley.edu/~ulrike/Papers/InflExp_44.pdf
* https://eml.berkeley.edu/~ulrike/research.html