Taming the " Inflation " Monster !

 Fifty years ago the dragon we needed to slay was called " inflation " !  Our economists were quick to point out the sort of damage inflation was doing to our superannuation accounts and how it would dictate a miserable old age unless we brought it back under control.

At that time, the government fought all and every demand for a wage increase tooth and nail and justified it as necessary to curb inflation in the national interest, but in recent times our Reserve bank has been hoping for a target of about three percent annually as being good to stimulate our economy.

Unfortunately, inflation has been falling far short of that target and now we have this coronavirus pandemic putting thousands on the wait for a job as the lockdown closes many businesses and sends the economy into deficit.

The economists think a serious bout of inflation would be a good thing because it would revive our economy.  To make that happen, the government will put four spending vouchers into the hands of every adult Australian and urge their use by way of buying a meal or accessing some form of entertainment.

The government is actually handing out a hundred dollar measure to encourage inflation and it comes in the form of four $25 vouchers.  If spent in the way the government suggests there is hope it will get the small traders moving again and it is hoped they will hire the help they need to get the public pouring through their doors.

Unfortunately, human nature being what it is there is also an expectation that many canny citizens will keep those vouchers in their wallets - unspent.  That is the mental comparison reached by those with money in a savings account that is drawing virtually no interest, but there is no doubt the government will put a time frame on the validity of those vouchers.

If they are not spent in the way suggested, then they lose value and become worthless.  It is certainly a bold step in government thinking to give away money on the expectation that it will revive employment by increasing demand for services.

But it is increased demand that puts upward pressure on prices charged and the economists predict that  a little inflation now would restore the balance that has been missing in recent years.  That seems to rely heavily on the " Hail Mary " approach that this move will not see inflation roaring away out of control and become a monster that deflates the currency.

The economists seem confident that we will not need a wheel barrow full of banknotes to buy a loaf of bread, as happened in Germany when inflation ran out of control back in the 1930's.  The Reserve bank of Australia stands ready to hike interest rates immediately if inflation seems likely to get out of control again.

We are off on an interesting experiment.  Eventually, the history books will reveal how our sojourn with inflation turned out.