Brazilian Journal of Political Economy, vol. 4 (1), January-March 1984 Accelerating, maintaining and sanctionanting factors of inflation

In order to understand inflation or stagflation in present day oligopolistic capitalism, it is necessary to distinguish the accelerating, the maintaining and the sanctionating factors of inflation. Four are the accelerating factors: change in profit margins, change in real wages above (or below) productivity, changes in the real exchange rate and in the costs of imports. The basic maintaining factors are formal and informal indexation of the economy and mark-up pricing. Given an autonomous inflation, that is, independent of sustained demand or full employment, the fundamental sanctionating factor of inflation will be the money supply. The inflationary process in this last quarter of the twentieth century can only be clearly undertood if we differentiate among the three mechanisms or factors that act on prices, determining that they constantly increase. These factors are: (1) those that cause the level of inflation to be maintained; (2) those that speed up (or slow down) inflation; and, (3) those that sanction or validate price hikes. The confusion and useless discussion surrounding inflation is, in large part, due to an inability to distinguish between these three mechanisms. Without a clear understanding of the concepts we are about to outline, it is not easy to distinguish the primary causes of inflation from the inertial factors that maintain the rate of inflation and those factors that sanction the current inflation rate. The first section of this essay examines certain assumptions concerning the nature of contemporary capitalism and the behavior of various economic agents. The next three sections examine the factors that speed up inflation (increased profit margins or increased real wages higher than productivity levels), maintain inflation (economic agents ’ ability to pass cost increases on to prices), and sanction inflation (particularly the increase in the nominal money supply). T