Inflation - why do we need it?

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Why do we need inflation? Could market prices just fluctuate according to supply and demand? It seems to me that the only real argument for inflation is that it is means for making the masses work just that little bit harder. By this I mean that companies and governments ensure that inflation rises a little bit more than wages when they want people to work a little bit harder, or to strive for that higher-paying job. In this situation, big businesses (as well as the progression of humanity's wealth) seem to be the only winners (eg. they can increase profits massively if they leave their workers' wages alone, while increasing the cost of their good/service in relation to inflation). Do we need inflation for anything other than this?


Inflation is the natural outcome of price changes brought about by market forces and governmental forces. It is the rate of change in the price level that, in a country like the U.S., is entirely determined by market forces and the actions of the US Fed in the money market. The Fed is required by Congressional mandate to keep inflation in check by changing the money supply or interest rates. I don't think the Fed ever thinks of inflation as something useful or desirable. I don't think it deliberately tries to keep inflation from falling too low but it may try to curb too high an increase. Short answer to your question: I don't think we need inflation for anything, it is not essential or rather, anything we can achieve with inflation, we may be able to achieve without it.

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Last updated on March 22, 2018