The discussions and palaver that revolve around inflation abound and redound. Many debates that long ago were overcome reappear as if they were novel or problematic (… it is unclear if inflation is so bad, it is hard to determine which levels are dangerously high, it is still unknown how to combat/prevent it, etc., etc.). It would seem then that there is a problem in the economic theory, that hasn’t given yet answers to these and other questions concerning inflation.

However, if we went through the economic discussions currently arising in any university or central bank in the world, we would find that this topic is not part of the discussions. That’s right, *there is no country in the world where the causes of inflation are discussed or where it is even thought that high inflation rates may have positive consequences for the economy *(to avoid ambiguities, let’s say that at least there is no doubt that an inflation rate that reaches two digits is high and dangerous).

And is not that it is not discussed because it is a minor topic or it lacks relevance. Quite the contrary, it is very clear that the inflation phenomenon is a very important issue for the economy of any country. Simply nobody discusses it because it is an issue that was already overcome.

*That simple, *the inflation problem was already solved!

We solved the inflation.

You have just heard it -I shouted it-, but I want to repeat it once more. Fortunately, after long years of study and experiences of all kind, the economic science was able to give an answer to the inflation problem. It overcame it, it solved it. Period.

In fact it is possible that the problem concerning inflation is the greatest success in the economic science as a whole, both at a theoretical and a practical level.

By this I mean that not only we know the different variables and mechanisms affecting the inflation phenomenon, but we also know how to avoid it, how to prevent it and, even if we fail, we know hot to combat it.

inflacionThus, it is not surprising that in 2013 only 5 countries had an inflation rate above 20% (Sudan, Malawi, Venezuela, Iran and Argentina), and a total of ten countries exceed the 10%. As you heard, only ten countries in the world have an inflation rate of 2 digits! (and please, note which countries we are talking about).

Obviously it is not by whim that no country want to live with high inflation. Nor it was on a whim that the economic theory has given so much relevance to the study of this topic. Actually we know how to deal with it because we know the great costs it entails: inequality, injustice, poverty, loss of the purchasing power of wages, appreciation of the real exchange rate, distrust in the currency, etc., etc. Huge costs in comparison to the negligible benefits it offers: a higher employment level in the short term, which, to be sustained, requires exponential levels of inflation, unsustainable over time.

In short…

Let us settle the following:

  • We know that inflation entails huge disadvantages in terms of efficiency and equity.
  • It is over-studied that high inflation is very very harmful, to the point where every country get very concerned when the inflation rate begin to approach levels close to 10% (actually the Central Banks worry when the inflation rate deviates from the established target, but I insist on the 10% as the breaking point to which nobody wants to get close to).
  • We have a great tooling of practical knowledge that was developed to avoid and solve this problem (and at very low costs!), verified with great success by any country that has set itself on avoiding it or combating it.

Let’s not keep on looking for problems where there are not. The economy already has enough problems of its own, but there is no doubt about this issue. Simply, the inflation is an issue the economic science has managed to solve. Perhaps this is one of the few, but the issue is finally solved. Period.