Commentary
The recent University of Michigan survey’s reading of one-year inflation expectations rose to 3.4 percent in July from 3.3 percent in June. The five-year outlook also increased to 3.1 percent from 3.0 percent in the previous month.
There is a mainstream narrative that is spreading throughout the financial media: We must accept 3 percent annual inflation as a success at combating rising prices. This is enough to pivot and return to monetary easing. Actually, it is not.
Three percent annual inflation for 10 years is a loss of purchasing power of the currency of 34 percent after what is already a disastrous inflationary environment.
There is nothing positive about rising long-term inflation expectations. It is not just the confirmation of a terrible destruction of real wages and deposit savings but also a huge incentive to maintaining the least efficient and unproductive parts of the economy. Inflation is not just a hidden tax created by bloated government spending financed with artificially created currency; it is also a hidden subsidy to obsolescence and a huge disincentive to innovation and technological transformation….