Inflation Essay ⋆ Essays on Controversial Topics ⋆ EssayEmpire

Simply defined, inflation is a persistent increase in the average price level of goods, commodities, and services. Typically measured as an annual percentage rate of change on an index number, in the United States, the inflation rate finds common expression using the consumer price index (CPI), a time-series measure of a weighted average of prices of a specified set of goods and services. Other key indices track producer prices, wholesale prices, and commodity prices. Currently, the base period for the CPI is the average prices in the 1982-84 period. Since 1950, the average annual inflation rate in the United States, as measured by the CPI, has typically fluctuated between 1 percent and 4 percent. However, the country experienced a much higher average annual inflation rate of 7.09 percent for the 1970-79 period, with a peak in 1974 of 11.1 percent, as a result of the Vietnam War and the price increases caused by the 1973 oil embargo by members of the Organization of Petroleum Exporting Countries (OPEC).

While it is generally acknowledged that economies are likely to function more efficiently if the rate of inflation is low, little consensus exists about the causes of inflation. The two basic categories of inflation in the economic literature are demand-pull inflation and cost-push inflation. Demand-pull inflation comes from increases in aggregate demand, whereas cost-push inflation results from decreases in aggregate supply. In modern economies, however, inflation is not a simple phenomenon of rising prices but is greatly affected by the supply of money. With the advent of fiat money, governments can have a significant impact on the rate of inflation through the manipulation of the money supply and the subsequent impact on the value of money.

An inevitable by-product of inflation is income redistribution, as the burden of increasing prices is not shared equally across all socioeconomic classes. In general, inflation tends to have a regressive impact due to the disproportionate loss of purchasing power, particularly among lower income groups and those on fixed incomes. Another aspect of income redistribution involves the “inflation tax,” caused by the government financing current expenditures through the printing of money. The resulting increase in the money supply has the effect of causing a decrease in the value of cash-based assets.

The sociological literature on inflation is relatively sparse, although there have been a handful of prominent contributions. For instance, an early contribution adopted a social conflict perspective in arguing that the inflationary period of the 1970s was largely a result of an intensification of distributional conflicts between labor and employers. In contrast, a more recent contribution emphasized the growth of the use of monetary policies by governments as a way of understanding the dynamics of inflation. The recent resurgence in economic sociology holds promise for future sociological analyses of inflation and its effects.

Bibliography:

Aldous, Joan, Rodney Ganey, Scott Trees, and Lawrence C. Marsh. 1991. “Families and Inflation: Who Was Hurt in the Last High-Inflation Period?” Journal of Marriage and the Family 55:123-34.
Goldthorpe, John H. 1978. “The Current Inflation: Towards a Sociological Account.” In The Political Economy of Inflation, edited by F. Hirsch and J. H. Goldthorpe. Cambridge, MA: Harvard University Press.
Smith, Michael R. 1992. Power, Norms and Inflation: A Skeptical Treatment. New York: Aldine de Gruyter.

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