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The Harvey files 1: inflation

By Harvey Cole  

Shorthand thinking means that inflation is now simply identified as an increase in prices. This is a dangerous misconception, as higher prices on their own are in fact deflationary. This point was recognised by some commentators when oil prices soared last year: the effect was correctly compared to a tax levied by the oil producers which depressed demand in general.

Higher prices are in fact a symptom of inflation, in the same way as a high temperature is a symptom of fever, not the fever itself. Inflation is fuelled by a rise in incomes and spending—not by higher prices, which…

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