Can inflation be reversed

Subscribe Sign In. Continue reading your article with a WSJ membership. Resume Subscription We are delighted that you'd like to resume your subscription. Please click confirm to resume now. Sponsored Offers. Most Popular News. That was at The Labor Department will announce the latest employment-to-population figure Friday when it releases the April nonfarm payrolls report, which is expected to show a gain of , jobs.

But we haven't gotten there yet. Despite fears that inflation pressures may be percolating faster than they believe, Fed officials have kept close ranks on their economic and policy views. Earlier in the afternoon, Fed Chairman Jerome Powell said, "We are not out of the woods yet, but I am glad to say that we are now making real progress. New York Fed President John Williams echoed those remarks, saying "if you look out your window today, the view is very different than it was a year ago.

Reversing deflation would imply introducing policies that support general increases in the prices of goods, i. This means that inflation could actually be an agent of economic growth. According to most experts, a little bit of inflation can actually be a good thing. According to popular thinking, in response to a high rate of inflation, consumers will speed up their expenditure on goods at present, which should boost economic growth.

Inflation is not about general increases in prices as such, but about the increase in the money supply. As a rule the increase in money supply sets in motion general increases in prices. This, however, need not always be the case. The price of a good is the amount of money asked per unit of it. For a constant amount of money and an expanding quantity of goods, prices will actually fall.

Prices will also fall when the rate of increase in the supply of goods exceeds the rate of increase in the money supply. The reason why inflation is bad news is not because of increases in prices as such, but because of the damage inflation inflicts to the wealth-formation process.

Here is why. The chief role of money is to fulfill the role of the medium of exchange. Money enables us to exchange something we have for something we want. Before an exchange can take place, an individual must have something useful that he can exchange for money. Once he secures the money, he can then exchange it for a good or goods he wants. Note that by means of money we have here an exchange of something for something. But now consider a situation in which money is created out of "thin air" — this is precisely what the counterfeiter does.

This type of money sets the platform for an exchange of nothing for something. The counterfeiter exchanges the printed money for goods without producing anything useful. The counterfeiter takes from the pool of real goods without making any contribution to the pool.

The economic effect of money that was created out of thin air is exactly the same as that of counterfeit money — it impoverishes wealth generators.

The money created out of thin air diverts real wealth toward the holders of new money.