Americans under 40 live with no memory of high or unpredictable inflation. Thus, the generational divide over the new, rising risk of inflation, with younger Americans more complacent, is no surprise. I don’t remember the high-inflation days, but I still fear the prospect of their return—in part because I study economic history and because most of my research focuses on financing retirement, but mostly because whenever we count out a risk, it seems to come roaring back.
Policymakers and observers may be tempted to let the price level creep up to 4 percent yearly growth and see what happens, but inflation can quickly spiral out of control. (The Federal Reserve currently targets an average inflation increase of 2 percent; inflation rose in April at a 4.2 percent yearly rate.) If prices seem poised to increase, then people will demand higher wages. They will then have more money to spend. Businesses, paying higher labor costs, will produce fewer goods, pushing inflation higher. Inflation makes the dollar less attractive as it depreciates; buying important goods becomes more expensive, too.
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