No Problem With Inflation?

In the wake of what might be a decision by Labour  to loosen the reins on inflation it is instructive to look at the Telegraph’s  report on what’s happening in Zimbabwe.

The highest value banknote is worth Z$50 billion – which is presently enough to buy one can of baked beans. At the TM supermarket in Harare’s northern suburb of Borrowdale, many shelves were bare yesterday. But a kilogramme of mince cost Z$490 billion and a kilogramme of sausage was going for Z$170 billion. A litre of imported orange juice cost an eye-watering Z$303 billion.

Some prices have trebled from a week ago, when toilet paper worked out at just under Z$22 million for a single sheet. There was none in the supermarket yesterday, but by now there is probably an alternative use for the Z$50 million note.

It is only 20 years ago that New Zealand had inflation above 20% . I remember only too well the individuals and businesses which were casulaties of it; and the difficulties associated with bringing it down again.

No-one is suggesting we would be in danger of ending up like Zimbabwe if inflation was allowed to increase a bit, but the only winners from even a small increase will be speculators. 

Hat tip: Tumeke!

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