The Inflation Myth and the Wonderful World of Deflation

What if everything you’ve learned about inflation is wrong?

The Inflation Myth and the Wonderful World of Deflation illustrates our rapidly changing world where constant technological innovation leads to cheaper and better products. These changes are no longer reflected in the ways we measure inflation. Renowned investor and author Mark Mobius persuasively argues that what we believe to know about inflation today does not reflect the reality any longer. It is a myth, a legend, a fable, and, yes, a falsehood for a number of reasons.

The Inflation Myth and the Wonderful World of Deflation tackles a number of fascinating topics, including:

• The political nature of inflation measurement where governments manipulate and exploit inflation numbers to fit their economic programs
• The extreme difficulty involved in gathering accurate data to measure inflation and the resulting inaccuracy of those measures
• The error of using currencies to measure inflation when those currencies are continually being debased by the governments who issue them
• Finally, and most importantly, the advances in technology and automation which are leading to continuously falling costs for goods and services

Perfect for anyone with even a passing interest in macroeconomic phenomena or government policies, which are significantly impacting people's everyday lives around the world, The Inflation Myth and the Wonderful World of Deflation provides a remarkably compelling and provocative view of stunning originality.

Preface xi

Introduction xv

Acknowledgments xxiii

About the Author xxv

1 History and Inflation 1

History as Inflation

Importance of Inflation Numbers

The Long Coffin

Marco Polo and Money

Gold and Silver Coins

Money and Trust

The Urge to Debase

Rome’s Debasement

England’s Debasement

Shells and Money

2 The Critical Importance of Inflation Numbers 21

Making Important Policy Decisions on

Inflation Data

International Interest in Inflation

The Influential Measure

Impact on Individual Lives

The Popularity of Inflation Numbers

India Stops Futures Trading To Influence Inflation

China’s Efforts To Influence The CPI Numbers

The Effect of Mexican Tomatoes On Inflation

Venezuela Attempts To Rein In Inflation Through

A Cryptocurrency

Fed Up

Inflation Numbers Knock-on Effect

Wage indexing

When Central Bank Actions Fail To Influence

Inflation

Investment Decisions and Inflation Numbers

Bank Decisions

3 What is Inflation? 37

What the Experts Say

Defining Inflation

Inflation as a Worldwide Disaster

4 What is Hyperinflation? 53

What the Experts Say

Hyperinflations around the World

The German Hyperinflation Experience

Yugoslavia: Printing Money To Pay

Government Debt

Legalized Looting In Zimbabwe

Printing 30 Tons of Zairean Banknotes

5 Money Supply and Inflation 67

Inflation as a Monetary Phenomenon

What Is The Money Supply?

Measuring Money Supply

Money Creation through Fractional-Reserve

Banking

The Money Illusion

Credit Is Money

The Collapse of Paper Money

Demise of the Dollar

The Gold Standard

The Universe of Cryptocurrencies

6 Measuring Inflation 85

Why You Can’t Trust the Inflation Numbers

The History of Measuring Inflation

Building the Index

Gin and Inflation Measurement

The Boskin Commission

US GDP Numbers Questioned

What Are People REALLY Buying?

The Changing Time and Place Bias

Market-Basket Bias

Data Gathering Difficulties

Complexity

Data Gathering

Currency Change Differences

Currency Confusion – The Tenge

Pakistan Statistics Concerns

China’s Suspect Statistics

UK Inflation Index Credibility

India – Data Gathering Difficulties

The Brazil Experience

Urban–Rural Inflation Differences In China

Inflation Differences Within Turkey

Malaysia Concerns

South Africans Skeptical Too

Income Differences

What Statistics Fail to Measure

7 Controlling and Manipulating Inflation 125

Governments’ Vested Interest

Central Banks Control Attempts

The Phillips Curve

The Taylor Rule

The Fisher Effect

Inflation Targeting

The Magic 2%

The Low Inflation Trap

Argentina: Lies, Damned Lies

Brazil Anti-Inflation Efforts

Chinese Government Efforts to Control Inflation

Philippines Data Control

Venezuela – Eliminating a Bill

India Control Efforts

Korea: Consumer Pressure

8 The Wonderful World of Deflation 155

What the Experts Say:

The Trend towards Lower Prices and Rising

Incomes

Food and Gold

Productivity and Deflation

Technology and Deflation

Deflation is Next Door – Singapore and Malaysia

Prices

Deflating the World’s Fair

Linking Income and Costs

Deflation Statistics

US Deflation

Singapore Deflation

Japan Deflation

India Deflation

China Deflation

9 Conclusions 195

References 199

Index 211

MARK MOBIUS leads Mobius Capital Partners as one of its founding partners. Formerly the executive chairman of Templeton Emerging Markets Group, Mark has extensive experience in economic research and analysis, particularly in emerging markets. He has served on the World Bank's Global Corporate Governance Forum as a member of the Private Sector Advisory Group.

www.markmobius.com

Highly provocative and intuitively compelling, The Inflation Myth and the Wonderful World of Deflation is an indispensably original look at one of the central pillars of macroeconomics: inflation.

Squarely taking aim at widely held economic beliefs, investor and author Mark Mobius systematically dismantles the conventional view of inflation. The author persuasively argues that, while the principles of inflation may once have held true, changing technological realities have rendered inflationary measurements highly unreliable, deeply politicised and profoundly inaccurate.

A gripping and convincing work of stunning originality, this book reveals that, when it comes to inflation, the emperor really does have no clothes.

Praise for the INFLATION MYTH

"If there's a timelier look at the farcical place the global economy finds itself in 2020 than Mark Mobius' new book, I'd sure love to find it. It almost reads like a public service – as all too many world leaders and investors resurrect the zombie idea that inflation is hiding under every rock. In stark and lively terms, Mobius counters a conventional wisdom that could do more to make lost economic decades great than lead to a productive and vibrant future. The more we engage in paranoia about a phantom inflation crisis, the dimmer our prospects become. As a long-time Japan resident and observer, I can confirm Mobius' take that everything the economists community thinks it knows about deflation needs revision. Kudos to Mobius for penning one."
—William Pesek, award-winning Tokyo-based journalist; Forbes columnist; author of Japanization: What the World Can Learn from Japan's Lost Decades

"Price stability is more than an economic creed for governments around the world. Rulers know that hyperinflation could shake a nation and they might even be expelled from the throne. In another extreme, advanced economies in the modern world are struggling to tame the deflation-liquidity trap. Mark Mobius' The Inflation Myth and the Wonderful World of Deflation is a fascinating book on this critical economic issue. From Wang Mang in ancient China to Jerome Powell of the US Fed, Mr Mobius has reviewed the global experience of (de)inflation comprehensively and concisely and asks the unavoidable question faced by the policymakers: Is inflation still relevant in managing money supply?"
—Raymond Yeung, Chief Economist Greater China, Australia and New Zealand Banking Group (ANZ)

"A very important and interesting book. It focuses on a topic we will be discussing in the next years, with extremely insightful views."
—Francisco García Paramés, Chairman and CIO, Cobas Asset Management