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Inflation is bad for growth—this has become one of the most widely accepted economic nostrums of our age. But see how you feel about it after digesting the following piece of information.
During the 1960s and the 1970s, Brazil’s average inflation rate was 42% a year. Despite this, Brazil was one of the fastest growing economies in the world for those two decades—its per capita income grew at 4.5% a year during this period. In contrast, between 1996 and 2005, during which time Brazil embraced the neo-liberal orthodoxy, especially in relation to macroeconomic policy, its inflation rate averaged a much lower 7.1% a year. But during this period, per capita income in Brazil grew at only 1.3% a year.
If you are not entirely persuaded by the Brazilian case—understandable, given that hyperinflation went side by side with low growth in the 1980s and the early 1990s—how about this? During its ‘miracle’ years, when its economy was growing at 7% a year in per capita terms, Korea had inflation rates close to 20%-17.4% in the 1960s and 19.8% in the 1970s. These were rates higher than those found in several Latin American countries ... Are you still convinced that inflation is incompatible with economic success?
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Ch. 7: Mission impossible?; Can financial prudence go too far?, There is inflation and there is inflation, p. 139-140

 

Ha-Joon Chang

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Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. ... A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.

 

Milton Friedman

 

[Australian Reserve Bank] Governor MacFarlane said recently when Paul Volcker broke the back of American inflation it's regarded as the policy triumph of the Western world. When I broke the back of Australian inflation they say, "Oh, you're the fellow that put the interest rates up." Am I not the same fellow that gave them the 15 years of good growth and high wealth that came from it?

 

Paul Keating

 

I think there are things of which I and the people who have worked with me can feel deservedly proud. They include restoring Russia's territorial integrity, strengthening the state, progress towards establishing a multiparty system, strengthening the parliamentary system, restoring the Armed Forces' potential and, of course, developing the economy. As you know, our economy has been growing by 6.9 percent a year on average over this time, and our GDP has increased by 7.7 percent over the first four months of this year alone.
When I began my work in the year 2000, 30 percent of our population was living below the poverty line. There has been a two-fold drop in the number of people living below the poverty line since then and the figure today is around 15 percent. By 2009-2010, we will bring this figure down to 10 percent, and this will bring us in line with the European average.
We had enormous debts, simply catastrophic for our economy, but we have paid them off in full now. Not only have we paid our debts, but we now have the best foreign debt to GDP ratio in Europe. Our gold and currency reserve figures are well known: in 2000, they stood at just $12 billion and we had a debt of more than 100 percent of GDP, but now we have the third-biggest gold and currency reserves in the world and they have increased by $90 billion over the first four months of this year alone.
During the 1990s and even in 2000-2001, we had massive capital flight from Russia with $15 billion, $20 billion or $25 billion leaving the country every year. Last year we reversed this situation for the first time and had capital inflow of $41 billion. We have already had capital inflow of $40 billion over the first four months of this year. Russia's stock market capitalisation showed immense growth last year and increased by more than 50 percent. This is one of the best results in the world, perhaps even the best. Our economy was near the bottom of the list of world economies in terms of size but today it has climbed to ninth place and in some areas has even overtaken some of the other G8 countries' economies. This means that today we are able to tackle social problems. Real incomes are growing by around 12 percent a year. Real income growth over the first four months of this year came to just over 18 percent, while wages rose by 11-12 percent.
Looking at the problems we have yet to resolve, one of the biggest is the huge income gap between the people at the top and the bottom of the scale. Combating poverty is obviously one of our top priorities in the immediate term and we still have to do a lot to improve our pension system too because the correlation between pensions and the average wage is still lower here than in Europe. The gap between incomes at the top and bottom end of the scale is still high here – a 15.6-15.7-fold difference. This is less than in the United States today (they have a figure of 15.9) but more than in the UK or Italy (where they have 13.6-13.7). But this remains a big gap for us and fighting poverty is one of our biggest priorities.

 

Vladimir Putin

 

In most Western economies, the general relationship is not in fact between the rate of inflation and the level of unemployment, but between the rate of change of inflation and the rate of change of unemployment.

 

Paul Ormerod

 

The acid test of monetary policy is its record in reducing inflation. Those who wish to join the debate about the intricacies of different measures of money and the implications they may have for the future are welcome to do so. But at the end of the day the position is clear and unambiguous. The inflation rate is judge and jury.

 

Nigel Lawson