Even if this week saw monthly inflation dipping for the first time in almost a year, single annual digits are still looking nowhere in sight. Inflation is rightly seen as the most malign tumour which can hit an economy but another way of expressing that might be to say that it grows on you like cancer and this will be the approach of today’s column – to play the devil’s advocate in favour of inflation in order to show that its attractions are the real secret of its persistence. A Soft Machine song from almost six decades ago starts: “It begins with a blessing and ends with a curse/Making life easy by making it worse” – they could easily be talking about inflation.
Firstly, a frequent confusion between inflation and price rises needs to be clarified. This columnist born in mid-century has childhood memories of old men telling him that in the good old days you could buy a suit, have a swank meal and get dead drunk for a shilling or even a farthing – an exaggeration, of course, but not that much. Looking at British prices today, how is that compatible with an average inflation of under five percent in the past century? The answer is that inflation is not a question of prices as such but measured against money supply – if global economic output has increased 50 times since the world of those old men, why not prices?
A pet argument to underline the evils of this dragon is to blame it for Adolf Hitler – the product of Germany’s 1923 hyperinflation, we are told time and time again. Simply not true – the Nazis came to power in 1933 while at the peak of hyperinflation the mark was halving in value every 80 seconds with wages paid twice daily so how can a process operating at such supersonic speed take fully a decade to produce Hitler? Serious history will tell you that Hitler was the product of the mass unemployment following the 1929 Crash.
Instead of Hitler, the 1923 hyperinflation gave Germany half a decade of prosperity. Following its defeat in the First World War, the Treaty of Versailles (1919) mandated Germany to pay reparations equivalent to some US$33 billion – which might not seem so astronomic today with Argentina having to pay more than half that sum next year but over a century ago it was impossibly crippling. Yet German Chancellor Gustav Stresemann hit upon the idea that complying with this monstrous burden could be more beneficial than not, embarking on a “fulfillment” policy which included frantically printing money to meet payments, pulverising the debt alongside the currency. This not only vaporised the national debt but also wiped out debt in the private sector, permitting German industry to adjust to postwar life on a clean slate. Once the hyperinflation had served its purpose, the so-called miracle of the Rentenmark restored monetary stability before the year of 1923 was out – the newly debt-free industries and land backing the recently introduced currency instead of the gold standard were a solid enough basis to restore confidence.
Such blessings of inflation can also be seen at work much closer in time and place in the Argentina of the past half-century, both in the private and public sectors. The survival of uncompetitive industries is generally attributed to protection in the usual sense in the form of tariffs but they have also been protected by an inflation rolling over their liabilities.
Ditto for the public sector – at least in the first year of the Javier Milei administration, its much-vaunted fiscal surplus was less miraculous than it seemed because it could collect revenues in real time while the 2024 inflation rate of 118 percent served to devalue spending commitments by meeting them down the road. Slashing inflation by almost three-quarters in the following year to 31 percent might rate as a momentous achievement but precious few companies finished 2025 with balanced books because they could not entrust their liabilities to the inflationary shredder on the previous scale. Again ditto for the public sector now facing shrinking revenues from a combo of laudable tax cuts and economic stagnation – ignoring public works and reducing provincial remittances to a trickle is no longer enough to sustain the fiscal surplus with floating debt doubled in March.
A little inflation (say, an annual rate of Argentina’s recent monthly figures) might sound like being a little bit pregnant but economists swear by it with deflationary spirals considered more dangerous than inflationary. This not only lowers real debt burdens, as explained above, but also prods consumers into spending while creating a general flexibility which economies always need, not least for interest rates. Inflation adds another dimension to the famous quip of 1971 Nobel Prize for Economics winner Simon Kuznets: “There are only four types of countries in the world: developed, undeveloped, Japan and Argentina” – while Argentina is still not out of its half-century battle against inflation, Japan has only recently emerged from over three decades of a chronic deflationary trap, causing most people to write off the 1990-2020 period as a lost generation. Shinzo Abe (assassinated in 2022) was entrusted with the premiership for a record nine years in the hope that his “three arrows” economic policies could snap Japan out of deflation but he never quite could. Japan has flirted with inflation in the past few years but there are doubts whether its ageing population has the purchasing power for sustained consumer demand.
So having made the case for inflation, were Argentines wrong to elect an abrasive president promising to slay the inflationary dragon? Clearly not – inflation is murderous for an economy and notoriously hardest on the poorest and pensioners while reducing the standard of living all round. The uncertainty discourages investment, for which businesses in any case have less margin because it inflates their costs – this often penalises the most productive sectors, as can be seen with Argentine farming. A system which rewards debtors and punishes savers does not sound healthy or morally uplifting. So in conclusion, inflation is all about making things easy by making life worse.
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