The Death of Inflation: The Great Disinflation and Its Consequences

In his book "The Death of Inflation," Roger Bootle argues that the era of high inflation is over and that we are now entering a period of "great disinflation." This has profound implications for the economy, financial markets, and society as a whole.

The End of an Era

For decades, inflation was a major problem for the global economy. It eroded the value of money, made it difficult for businesses to plan, and contributed to social unrest. However, in the 1980s, inflation began to decline, and it has remained low ever since.

Bootle argues that this decline in inflation is not a temporary phenomenon, but rather a structural change in the economy. He identifies several factors that have contributed to this change, including:

• The rise of China and other low-cost economies: The globalization of production has put downward pressure on prices, as businesses can now source goods and services from anywhere in the world.
• The decline of unions: Unions used to be a powerful force in the economy, and they were able to negotiate wage increases that outpaced inflation. However, the decline of unions has weakened workers' bargaining power, and this has helped to keep wages down.
• The rise of technology: Technology has made it possible for businesses to produce goods and services more efficiently, which has also helped to keep prices down.

The Consequences of Disinflation

The great disinflation has had a number of positive consequences for the economy. It has made it easier for businesses to plan, it has reduced the cost of living, and it has contributed to a period of sustained economic growth.

However, disinflation has also had some negative consequences. It has made it more difficult for central banks to stimulate the economy, and it has led to a decline in interest rates, which has made it more difficult for savers to earn a decent return on their money.

The Future of Inflation

Bootle believes that the great disinflation will continue for the foreseeable future. He argues that the factors that have contributed to disinflation are still in place, and there is no reason to believe that they will change anytime soon.

This has implications for investors, policymakers, and businesses. Investors need to be aware that the era of high inflation is over, and they need to adjust their portfolios accordingly. Policymakers need to be aware of the challenges that disinflation poses for the economy, and they need to be prepared to take action if necessary. Businesses need to be aware of the impact that disinflation will have on their costs and profits, and they need to make adjustments accordingly.

Conclusion

"The Death of Inflation" is a must-read for anyone who wants to understand the current economic environment. Bootle provides a clear and concise explanation of the causes and consequences of disinflation, and he offers valuable insights into the future of inflation. This book is essential reading for investors, policymakers, and businesses.