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The Muddled Politics of US Inflation

While today’s inflationary surge is nothing like the hyperinflationary episodes of the twentieth century, its long-term impact may reverberate long after consumer prices stabilize. That is because no other economic indicator has so direct an effect on political leaders’ popularity.

WASHINGTON, DC – Rising inflation has put the United States on edge. While much of the focus so far has rightly been on the pain that price increases inflict on ordinary Americans, many are concerned about the long-term political effects. With polls suggesting that angry voters will likely hand Republicans control of one or both houses of Congress in the US midterm elections next week, today’s inflationary surge may affect US politics long after price pressures ease.

But popular anger reflects a fundamental misunderstanding of the forces driving inflation in the US and beyond. For starters, while the level varies from country to country, today’s inflation is a global phenomenon. Annual consumer-price inflation is at 8.2% in the US, 10.1% in the United Kingdom, 10.4% in Germany, and 11.9% in Italy. Among emerging and developing economies in Asia, year-on-year inflation is at 5.7% in South Korea, 7.4% in India, and 85.5% (not a typo) in Turkey.

While the current outlook for the world economy is undoubtedly grim, we must not lose perspective. Today’s inflationary pressures are nothing like the hyperinflationary episodes of the twentieth century. Interestingly, while developing countries in Latin America and Africa have experienced periods of extreme hyperinflation, the worst episodes on record are Hungary’s 1946 bout, followed by Germany in 1923. Back then, inflation accelerated so rapidly that the price of restaurant-goers’ lunch would often increase as they ate.

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