The inflation trilemma

You all know by now that the measured rate of price inflation came in at 4.2%, much higher than expected.  Many people wish to maintain this is not a major problem, and maybe they are right.  But here are three views you cannot hold simultaneously:

1. The distribution of income really matters.

2. Workers don’t have nearly enough bargaining power, and are at a disadvantage in negotiations and renegotiations.

3. Higher rates of price inflation are not a problem.

Higher rates of price inflation, of course, lower real wages unless workers can bargain back up the nominal wage to reattain their previous real wage.  You could try the “poor people win it back on their nominal debt” argument, but a) debt has to be high relative to the future stream of wages, b) wages also serve allocational and motivating functions, and c) if worker wages don’t rise much to offset the inflation, future borrowing will be more costly, in real terms too even though it looks like “only a nominal interest rate increase.”


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