High inflation caused the native currency, the rial, to plummet in value.
In Britain a bout of high inflation caused real wages to tumble between 2007 and 2013.
But the fuel price hike fed into an already high inflation, causing widespread unrest.
The concern, as my old friend ex-MPC member Adam Posen made clear this week, is that the will UK enter a new period of stagflation, of low growth and high inflation caused by Brexit.
Raghuram Rajan, the boss of India's central bank, is grappling with high inflation caused in large part by food prices: wholesale onion prices soared by 278% in the year to October and the retail price of all vegetables shot up by 46%.
(pdf) It argues that deficits must be cut because traders, investors, and creditors will become fearful of high inflation caused by government spending, because credit markets will clamp down on government debt, and because government spending will be a major contributor to loss of business and consumer confidence.
And, finally, higher inflation causes distortions to relative prices and to the tax system – distortions that have potentially significant costs, and not just in recessions.
According to the Phillips curve, higher inflation causes wages to rise more quickly, thereby fooling unemployed workers into thinking that the higher nominal wages are generous when, in fact, they are simply inflation-adjusted wages.
Friedman also later argued that inflation and unemployment could rise in tandem something Keynesians saw as conceptually impossible, because they believed that higher inflation caused lower unemployment, and vice versa, and it was government's job to strike the perfect balance between these two conflicting forces.
Friedman also later argued that inflation and unemployment could rise in tandem — something Keynesians saw as conceptually impossible, because they believed that higher inflation caused lower unemployment, and vice versa, and it was government's job to strike the perfect balance between these two conflicting forces.
