The price inflation is a hot topic just now. The currently ongoing price inflation has been triggered by the downturn of the aggregate supply such as being influenced by the material costs so that majority agree that this is a bad inflation regardless of the theoretical perspectives. On the other hand, there is a perspective welcoming the price inflation especially the one stimulated by the increasing aggregate demand backed up by the market confidence. "Is the inflation really bad?" is one of the most hotly debated macroeconomic debates among different theoretical perspectives.
There is a theory called the Philips curve showing the negative correlation between the price inflation rate the unemployment rate. Higher the inflation, more confidence for employers to hire more employees and invest to their business, and vice versa. Even though the price inflation depreciates the real wage of employees, the upward trend of the price in general encourages the nominal wage rise offsetting the real wage depreciation. All in all, those supporting the Philips curve appreciates the positive effect of the price inflation.
There is a theory challenging the Philips curve model. The Barro-Gordon model claims the negative correlation between the price inflation rate and the unemployment rate prevails only in the short run. It suggests that this correlation is zero in the long run so the unemployment rate bounces back after the short0-term temporary change. When the price inflation stays high, there is no effect on the unemployment rate left so only the depreciation of the real wage remains.
Some Monetalist economists and almost all the Supply-side macroeconomists accuse any level of the positive number inflation rate. The high price inflation rate implies the scarce aggregate productivity level mostly due to the high costs and the inefficient distribution inside the supply chain networks. Thus, they insist on suppressing the price inflation with the best effort with any available method.
In contrast to the aforementioned theorists, majority economists nowadays warn that the negative rate price inflation, so called the deflation, is bad as much as, or even worse in many occasions than, the positive rate inflation. The USA in 1930s, Japan since 1990s, and the Western European countries since 2008 have experienced the notorious economic downturn harming various kinds of the socioeconomic aspects because of the long haunting negative price inflation. This phenomenon has inspired economists to avoid the excess suppression of the price inflation. Instead, they have affirmed to set the target at 2% by taking the +/- variance of it enough to diverge from failing into either the high positive or the negative level.
Sum up, the debate over the price inflation is still controversial whereas majority agree with each other that the substantially high price inflation is bad due to its disturbance causing to an economy. Many affirm a moderate inflation rate caused by the positive aggregate demand is good whilst some others disagree. Te controversies are how high/low it should be, and this may depend on its characteristics and its root causes. As long as the current fiat-currency based economy thrives, this controversy will hardly disappear.
