The Inertial Inflation of the Early Twenties

In this chapter, Pittaluga and Seghezza show how between 1919 and the first half of 1922, Weimar Germany was subject to intermittent episodes of high inflation. This inflation was not the outcome of a lack of policy, but rather a deliberate choice encouraged by German industry which feared a potential German Bolshevik revolution. According to the authors over time the use of inflation as a means of avoiding social conflict made the inflationary process persistent. In fact, beginning in 1920, an official cost-of-living index became available, making it easier to tie wages to inflation. As inflation rose, the need to reduce the delay in wage adjustments became more acute and the frequency with which wages were adjusted gradually increased: at which point inflation became persistent.