When people begin anticipating inflation, it doesn't do you any good anymore, because any benefit of inflation comes from the fact that you do better than you thought you were going to do.
Interpretation
Anticipating inflation can negate its benefits, as expectations influence outcomes.
This quote by Paul A. Volcker highlights the complex relationship between inflation and people's expectations. When individuals or markets begin to anticipate inflation, the original advantages of inflation—like improved performance beyond initial expectations—can be diminished. Essentially, if everyone expects inflation, it can lead to a self-fulfilling prophecy that undermines the positive aspects of economic growth related to inflation.
In practice
In a seminar about economic forecasting, this quote can shed light on the impact of consumer expectations.
Competition is the most promising means to achieve and secure prosperity. It alone enables people in their role of consumer to gain from economic progress. It ensures that all advantages which result from higher productivity may eventually be enjoyed.
Today, if you look at financial systems around the globe, more than half the population of the world - out of six billion people, more than three billion - do not qualify to take out a loan from a bank. This is a shame.
Governments must commit to sound economic and financial policies. This is how we ensure reform in the euro area - and our independence.
The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom.
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There is a basic lesson on financial crises that governments tend to wait too long, underestimate the risks, want to do too little. And it ultimately gets away from them, and they end up spending more money, causing much more damage to the economy.
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