Inflation may be asleep for the time being, but it is far from dead, warns Kenneth Rogoff, a Harvard University professor and former chief economist for the International Monetary Fund (IMF).
"Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity,"
Rogoff writes in an article for Project Syndicate.
That's a big mistake, he says.
Editor’s Note: Get These 4 Stocks Before 399% Stock Market Rally!
Some of the factors that helped contain inflation in the past, such as increasing globalization and technological advances, are disappearing, he says.
A quick look around the world shows that inflation is alive and well. Last year, annual inflation rates were in the high single digits or higher in over half a dozen countries, including 9.5 percent in India, 10.6 percent in Argentina and 40.7 percent in Venezuela, he writes, citing IMF data.
Advanced countries are better off but still susceptible.
"Many of the same pundits who never imagined that advanced economies," he says, "could have massive financial crises are now sure that advanced economies can never have inflation crises."
Southern European countries joined the euro to gain anti-inflation credibility, as they could benefit from northern countries' commitment to price stability.
"As it turned out, the euro was not quite the free lunch that it seemed to be," Rogoff remarks. "The gain in inflation credibility was offset by weak debt credibility. If the European periphery countries had their own currencies, it is likely that debt problems would morph right back into elevated inflation."
While inflation probably won't immediately return in countries like the United States or Japan, there's no guarantee the Federal Reserve will be able to control inflation in the long run, especially if it faces major shocks like a general rise in global real interest rates.
We should bury the argument that countries with flexible exchange rates should not fear inflation if they issue debt in their own currency, he argues. If Italy still had its own currency instead of the euro, it would probably have high inflation like Brazil or Turkey.
"Modern central banking has worked wonders to bring down inflation," Rogoff writes. "Ultimately, however, a central bank’s anti-inflation policies can work only within the context of a macroeconomic and political framework that is consistent with price stability. Inflation may be dormant, but it is certainly not dead."
Taking a different view, Nobel laureate and
New York Times columnist Paul Krugman argues that fears of inflation are overblown. Commenters' warnings about a return of hyperinflation have been consistently wrong over the last five or more years, he writes.
Warnings about inflation returning persist partly because the wealthy worry that inflation will erode their wealth, according to Krugman.
"I think this may in part reflect the problem that always comes with wealth and power: people tell you what you want to hear."
Editor’s Note: Get These 4 Stocks Before 399% Stock Market Rally!
© 2025 Newsmax Finance. All rights reserved.