Inflationary psychology could make things worse, but for now it's in check

By Meg Elkins, Senior Lecturer with School of Economics, Finance and Marketing and Behavioural Business Lab Member, RMIT University
Robert Hoffmann, Professor of Economics and Chair of Behavioural Business Lab, RMIT University

With the world is experiencing inflation levels not seen since the 1980s, central banks are caught between warning of the dangers of an 1970s-style inflationary spiral, and contributing to that spiral by talking about it.

It’s a problem in any part of the economy where expectations shape outcomes.

On one hand, central banks including Australia’s Reserve Bank say they fear the return of “inflation psychology” – in which expectations of high inflation drive high inflation.

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