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Concept
Chronic inflation
Summary
Chronic inflation is an economic phenomenon occurring when a country experiences high inflation for a prolonged period (several years or decades) due to continual increases in the money supply among other things. In countries with chronic inflation, inflation expectations become 'built-in', and it becomes extremely difficult to reduce the inflation rate because the process of reducing inflation by, for example, slowing down the growth rate of the money supply, will often lead to high unemployment until inflationary expectations have adjusted to the new situation.
Chronic inflation is distinct from hyperinflation.
Even more so than hyperinflation, chronic inflation is a 20th-century phenomenon, being first observed by Felipe Pazos in 1972. High inflation can only be sustained with unbacked paper currencies over long periods, and before World War II unbacked paper currencies were rare except in countries affected by war – which often produced extremely high inflation but never for more than a few years. Most economists believe chronic inflation first emerged in Latin America following World War II, with the result that it was originally called "Latin inflation". Some economists, however, argue that the experience of France in the 1920s was the first case of chronic inflation. Japan (see below) in the years surrounding World War II is another case with characteristics very akin to well-studied cases of chronic inflation.
Monetarists state that chronic inflation is caused by chronic growth of the money supply, a position that is accepted by most mainstream economists. This paragraph describes reasons for persistent monetary growth.
In the 1960s and 1970s, chronic inflation was attributed to powerful political group interests with radically divergent policy demands; the power of labour unions to demand high wages for workers, often in obsolete economic sectors, conflicted with the somewhat feudal political structures of the affected countries.
Official source
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