In the 1940s and 1950s, due to the influence of the war, Keynesian cheap-money policy and deficit fiscal policy increased the money supply sharply, which led to the increasingly serious inflation after the war. In this case, many countries have adopted a certain degree of austerity policies to stabilize prices and overcome inflation.
In 1960s, the inflation rate hovered between 1% and 2%, but after that, the economy began to suffer from high inflation rate. By the end of 1960s, the inflation rate reached 5%, reaching 1974, reaching double digits.
During the period of 1975 ~ 1978, the inflation situation eased, but at 1979 and 1980, the inflation rate reached 10%, and then at1982 ~/kloc. During the period from 1989 to199, vicious inflation broke out in Argentina, Brazil and Peru. Inflation is manifested in the rising price level, which also led to workers' strike and caused a serious economic and political crisis.
In the past few decades, policy makers represented by the United States have gradually realized the social and economic costs of inflation and paid more and more attention to price as the goal of economic policy. In fact, price stability is increasingly regarded as the most important goal of monetary policy. People want price stability, because the rising price level (inflation) has caused uncertainty in economic life and may hinder economic growth.
For example, when the overall price level changes, the information conveyed by the price of goods and services is more difficult to explain, which makes the decision-making of consumers, industrial and commercial enterprises and the government more complicated. Not only opinion polls show that the public hates inflation very much, but also more and more evidence shows that inflation leads to low economic growth. The most extreme example of price instability is hyperinflation, such as Argentina, Brazil and Russia in previous years. Many economists attribute the low growth in these countries to hyperinflation.
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Central banks such as the Federal Reserve can strongly influence the inflation rate by setting interest rates and other monetary policies. High interest rate (and slow growth of capital demand) is a typical anti-inflation measure for the central bank to curb price rise by reducing employment and production.
Central banks in different countries have different views on controlling inflation. For example, some central banks pay close attention to symmetric inflation targets, while others only control inflation when it is too high. The European Central Bank was accused of adopting the latter in the face of high unemployment.