Inflation. Martha Olney. 2025. The MIT Press. 296 pp.
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From an award-winning professor of economics, an accessible and comprehensive introduction to what causes, and what can address, increases in the cost of living.
Anyone who has balked at the price of a carton of eggs or lamented the cost of a tank of gas in the past five years has experienced the sting of inflation. What causes inflation? When has it surged historically? And which policies best address it? In this concise and timely volume, economist Martha Olney explains what inflation is, its patterns over time, its underlying causes, the controversial Phillips Curve and its possible relevance, anti-inflation policy, and more. From the obvious rise in the cost of living to the more discreet decrease in quality of goods and services, Olney provides an indispensable introduction to the concept of inflation and what we can do to address its effects.
Martha Olney is a teaching professor of economics at the University of California, Berkeley. Her research has focused on consumer durables, the advent of consumer credit in the 1920s, and the Great Depression. She has been awarded the Berkeley Distinguished Teaching Award and the Jonathan Hughes Prize for Excellence in Teaching Economic History, by the Economic History Association.
Chapter 1
Inflation is the increase in the cost of living. Inflation lowers the purchasing power of money. Hidden inflation is when we are paying the same but receiving less. Quality changes also contribute to hidden inflation. Lenders are far less optimistic about inflation than borrowers. Inflation erodes the value of the things we own, our assets. The value of our savings was eroded by price inflation. When our income rises, price inflation is less cumbersome. There is a gap between the time when prices begin to rise and when income does.
In April 2022, when the inflation rate in the United States was over 8 percent, nearly all respondents (93 percent) ranked inflation as a moderately large or very big problem. An August 2022 poll found that even higher-income US households reported that the 2022 inflation was creating financial hardship. One-third of US adults surveyed in 2021 could not cover a $400 unexpected expense out of current income. Over half of Black, Native American, and Latino US adults do not have enough savings to cover one month’s expenses. The average holdings of liquid assets in 2019 was $8,000 for White households, $1,500 for Black households, and $2,000 for Hispanic households.
- Deflation. Prices of goods and services are declining.
- Disinflation. There is inflation but its rate is getting smaller.
- Hyperinflation. Prices are rising extremely rapidly.
- Core inflation. Excludes the prices of food and energy.
Indexes:
- The Consumer Price Index (CPI) surveys the prices of what is called a typical market basket of goods and services purchased by consumers.
- The Personal Consumption Expenditures (PCE) price index relies on surveys of businesses who sell consumer goods and services.
- The Gross Domestic Product (GDP) price index covers prices of all final goods and services produced in a country: the consumer goods and services included in the PCE price index, plus final goods and services bought by businesses and by government, as well as goods and services exported.
- The Producer Price Index (PPI) measures the prices received by a country’s producers of goods and services.
Seasonal adjustment is a statistical technique used to remove predictable, recurring fluctuations (like holiday shopping or summer construction booms) from economic time series data. Food and energy prices are difficult to manipulate by monetary policy because their volatility is driven largely by weather, disease, and geopolitical factors.
Chapter 2
Vocabulary
- Sanguine. Lenders are far less sanguine about inflation than borrowers.
- Bevy. A bevy of government agents.
