Focus must be on economy’s price dynamics

For virtually every central banker in the world, inflation is the enemy, although the extent of the enmity does tend to vary from country to country.

Inflation is an evil because it erodes the purchasing power of people’s money, and this is particularly difficult for those on fixed incomes such as pensioners.

However, if workers are being forced to pay more and more for goods and services, then the obvious response is to push for higher wages, which in turn forces the producers of goods and services to increase the price of the products that they sell to preserve margins. The result can be a very damaging wage and price spiral.