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This is a complex topic and one that I don’t fully understand. Nonetheless, I’ll share my understanding and hopefully, we all can improve our understanding. Firstly I want to differentiate between DM inflation and EM inflation and high inflation and Hyperinflation. EM inflation is often caused by different dynamics than DM inflation. In particular, EM and Weimar Republic inflation and the subsequent hyperinflation is often caused by large debt denominated in gold or a foreign currency. In order to pay off debt these 

Countries stimulate their export economy by successively devaluing their currency. That’s for a different thread. 

Why is DM inflation bad. I will lay out a few points that are relevant 

DM inflation is bad because 

Values related 
1. It impacts various parts of society differently
2. Its cost to society is spread across most of society while its cure effects a smaller part of society extremely hard

Economic risk related
1. It could lead to hyperinflation

2. All economic participants have more difficulty planning their spending, real investment, and financial investment which has an impact on long-term productivity and the related standard of living of the society
3. Governments and central banks lose credibility in leaning 

Against economic stress resulting in societal conflict and economic instability which again results in worse long-term productivity and standard of living improvements 

Inflation does have benefits.
1. Debtors benefit by paying off their obligations with inflated fiat 

2. Moderate inflation generates positive nominal interest rates which allows interest rates to fall (either organically or by central bank action) when economic conditions shift to deflation or recession or both 

Before I jump into those various impacts of inflation it’s also important to recognize that the level of inflation has certain impacts and the uncertainty of future inflation has other impacts. Notice the Fed “dual mandate” is actually not a dual mandate but a tri mandate

Think that the fed will accept an increase in the level of inflation because they realize getting the level to 2% over the next ten years will be quite difficult due to the broad economic pain it would require. I say that choice has meaningful consequences. 

Values are important when discussing inflation or any other societal issue. Conceptually we all value the same things. For instance during COVID we all valued life. No one actively wanted people to die. Even one extra death was something no one wanted. However we also all valued 

Our own personal freedom to make our own choices. No one wanted to shelter or wear masks or get a quickly tested potentially unsafe vaccine. This is why when values conflict we have each person come to different decisions. It’s the weighting of values that determines how we all 

Come to decisions. So coming back to inflation. Values play an important role. 

1. Inflation impacts different parts of society differently. 

Needless to say when choosing to fight inflation or ignore it each member of society and the institutions that represent us weigh 

The pain of each impacted cohort and they use the particular weighting of their values to come to a decision. Each member of society may have opposing views related to their own values. For instance, this guy values getting richer over society’s pains

Of course, he could be unbiased and simply say what would be best according to his values but lololol

So let’s at least examine some cohorts for how inflation impacts each one

Savers
Anyone with savings which include deposits in bank accounts or investments, fixed income in 

In particular, lose purchasing power. This can be the super-rich, but it also includes the pensioner living on her savings some of which may be indexed to inflation but some of which may not. Plus the pensioner’s spending may be on a different basket than what is in the index 

Wage earners with no savings. This cohort’s experience depends entirely on the basket they spend on vs the wages they earn. Lately, wages have been rising faster than basket goods and services and that is helping ease the pain. Unfortunately the pain of rising goods and services 

Happened rapidly and this cohort has not gotten back to affordability. In addition, it is likely that over the past decade of monetary stimulus which has inflated asset prices and created a large wealth gap has also taken some of the leverage from labor and handed it to capital 

Again values! Nonetheless, this cohort will also feel the pain of the cure to inflation of demand destruction as they earn their income via jobs that are the specific target of central bankers. 

Which again hits a values point
2. The cure of inflation hits a small portion of 

society much harder than the pain experienced by the majority of society due to inflation. Is the cure worth it was given the devastating job loss experienced by 1-3% of our society such that the balance of society will see inflation returning to target. That’s a values question. 

Let’s leave values for a moment and discuss the economic impact of inflation on the future. 
1. Inflation can lead to hyperinflation which is a much more undesirable form of inflation. Hyperinflation is uncontrollable using the typical tools of our monetary and fiscal 

Institutions. Raising interest rates no longer works, cutting government spending with austerity adds to the pain. Currency devaluation. If done aggressively enough has a chance but is risky and devastating for the standard of living. 

But coming back from extremes we end up at stable prices vs unstable prices. The second of the tri mandate. Stable prices are important for all members of society as they allow for future planning. When prices are uncertain and volatile members of the economy spend time and 

Energy coping with the change in prices would have been better spent focusing on improving productivity. Unstable prices lead to economic inefficiency and when persistent extract a long-term cost from the economy in lower future productivity and standard of living.

3. Loss of credibility of our institutions. Our institutions have the mandate to provide economic opportunity and a stable growing standard of living for the society they represent. In the fed’s case, it is the tri mandate. If they are unable to achieve their mandate that 

That results in long-term undershooting of a society’s potential as actions by the central bank are assumed to be ineffective due to past failures. While many criticize central banks for valid reasons. I am quite certain that a central bank that specifically fails its mandate 

Would be worse and no central bank at all even worse. But that is a different debate. 

In summary. Inflation is complex and members of society with different values have differing desires to fight inflation but it must be fought as the failure to bring about stable prices 

Will affect all members of society in the long-term underperformance of the economy and a lower standard of living. This is where short-term values get in the way. When those values conflict and the central bank is pulled by its own values and the dual mandate it may make a mistake that leads to further economic risk when inflation continues. No one can predict the turn of inflation and the fed may have gone too far or not far enough. But overdoing tightening vs pivoting seems a sensible choice to me. 

This brings us to the mandate and the logic behind a 2% inflation target. The benefits of inflation AND stable prices are that 1. Debtors get a break. That’s a questionable subsidy and is a societal wealth transfer from savers to debtors. But there are a number of regressive 

Factors in our society and perhaps this is one that is desired by society. That said it is also capable of being priced by both debtors and savers if prices are stable. 2. It generates moderate but positive nominal yields that can be cut if necessary in a deflationary recession 

There are so many more issues to deal with including why we have inflation at all

1. My view is it is fiscal policy-driven demand which is probably the best form of inflation as it doesn’t make us as a society poorer.

2. Supply-side inflation is much more difficult as it 

Allocates limited resources to a particular section of society. 

But as I said above neither is great and in particular volatile prices are the worst.