An Inflation Reality Check

Most central bankers and investors seem to prefer the prospect of high inflation for a couple of years to even a short and shallow recession. But they too easily forget the costs of high inflation, and how difficult it is to squeeze it out of the system.

CAMBRIDGE – As inflation continues to soar everywhere, maybe the world’s central bankers need a jolt to awaken them from complacency. How about holding one of their bi-monthly meetings in hyperinflationary Zimbabwe? It might not be comfortable, but it would be educational.

According to Zimbabwe’s official statistical agency, inflation topped 66,000% in 2007, which looks more like Weimar Germany than modern-day Africa. While no one is quite certain how the government managed to estimate prices, given that there is virtually nothing for sale in the shops, most indicators suggest that Zimbabwe does have a good shot at breaking world records for inflation.

Of course, curious as they might be, central bankers could decide that meeting in Harare would be too inconvenient and politically unpalatable. Fortunately, there are lots of other nice – albeit less spectacular – inflation destinations. Inflation in Russia, Vietnam, Argentina, and Venezuela is solidly in double digits, to name just a few possibilities.

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