I love it when I can debunk long-held finance dogma with a simple chart. One such dogma is that we need to have a balanced budget. If a government runs persistent deficits for a long time, investors will become reluctant to hold government debt and demand an increasing risk premium, which will create even bigger deficits and eventually triggers either a devaluation of the bonds or the creation of inflation through money printing or other measures to devalue the bonds in real terms. Alternatively, if a government runs persistently high deficits it will have to eventually raise taxes. Investors, knowing this will reduce investment and thus growth or demand higher wages in order to save for the day when the higher taxes come to pass. Either way, there is theoretically a link between a government running deficits for a long time and inflation following suit.
I don’t know about others but I don’t overly depend on CPI. For me, my relevant rate of inflation to my reality is not some stats crafted by the government. If the exemptions from CPI data (food, petrol Etc) is where I spend my money on, that’s my “inflation”. There are many things tied to CPI such as COLA (cost of living adjustments) for other big items like Social Security checks so one might wonder if there is no incentive (conscious or otherwise) to keep certain public metrics low. Not saying that horse 🐴 is alive. Just saying I don’t even care
I don’t know about others but I don’t overly depend on CPI. For me, my relevant rate of inflation to my reality is not some stats crafted by the government. If the exemptions from CPI data (food, petrol Etc) is where I spend my money on, that’s my “inflation”. There are many things tied to CPI such as COLA (cost of living adjustments) for other big items like Social Security checks so one might wonder if there is no incentive (conscious or otherwise) to keep certain public metrics low. Not saying that horse 🐴 is alive. Just saying I don’t even care
A neatly written article, making a point without excess waffle.
Should be required reading for any MP, or the equivalent around the world - there's even a chart or two for the hard-of-understanding.