“We are inside.” – Mark Hulliung, Sartre and Clio. Encounters with History (2013), p. 10.
The threat of inflation makes daily headlines right now. In most advanced economies, only people over the age of 40 have any personal experience of serious inflation. But scary historical episodes are easily to hand. The 1970s ghost through policy-talk.
Whether or not such historical clichés are at all relevant to our current moment, is one line of debate. I am on the skeptical side of the fence. Fifty years on from the last great inflation in the West, the political economy, has radically changed. The bargaining power of labour is far weaker. Today, the risk of a wage-price spiral seems slim. The global headwinds that dampen inflationary risks continue to be strong. Indeed, so stark are these differences that it seems surprising that simple historical analogies are taken seriously at all. What is truly intriguing, however, is a deeper and more basic question. If there are underlying changes in the regime of price-setting, is our current system of inflation measurement set up to give us a good handle on 21st-century price dynamics? How do you deal with a shock like 2020? In its aftermath, how do you recognize inflation when it does arrive?