The discussion of CPI based inflation and the return on savings account appear to be a bit 1950s, in my view. For most of the middle class living the developed nations, the daily concerns aren't how much am I paying for a pairs of shoes from Vietnam but can I afford a home and how is my stock portfolio doing.
The central banks' focus on consumer prices, as opposed to adding a higher weight to financial prices, appears to me to be focusing on a portion of households' consumption basket that is decreasing in importance. We don't hear the younger generation protesting about the rising cost of bread but the rising cost of education, capital assets and wage stagnation.
So in this sense isn't the whole debate around what is "good" money based on a metric of CPI inflation moot? What good is talking about CPI inflation if that not a metric that would influence the behaviour of households and businesses to consume or invest?
Savers and investors are not the only stakeholders in a good-money system. Wage earners and employers have an interest in stable, predictable prices but not necessarily zero inflation. A modicum of inflation is, I believe, widely seen as a way to make relative price changes easier to bear. That's not fully rational, of course, but behavioral economics that highlights recency bias probably speaks to this.
Hi Jens,
The discussion of CPI based inflation and the return on savings account appear to be a bit 1950s, in my view. For most of the middle class living the developed nations, the daily concerns aren't how much am I paying for a pairs of shoes from Vietnam but can I afford a home and how is my stock portfolio doing.
The central banks' focus on consumer prices, as opposed to adding a higher weight to financial prices, appears to me to be focusing on a portion of households' consumption basket that is decreasing in importance. We don't hear the younger generation protesting about the rising cost of bread but the rising cost of education, capital assets and wage stagnation.
So in this sense isn't the whole debate around what is "good" money based on a metric of CPI inflation moot? What good is talking about CPI inflation if that not a metric that would influence the behaviour of households and businesses to consume or invest?
Savers and investors are not the only stakeholders in a good-money system. Wage earners and employers have an interest in stable, predictable prices but not necessarily zero inflation. A modicum of inflation is, I believe, widely seen as a way to make relative price changes easier to bear. That's not fully rational, of course, but behavioral economics that highlights recency bias probably speaks to this.