These both seem like perfectly reasonable culprits for why inflation is bad, but I think they are more second order effects. Primarily, inflation is bad because prices are less sticky than wages. Certainly this is more true when inflation is volatile and hard to predict. In your first example of an economy of 10% inflation per annum, you can imagine a scenario where over time it is predictable enough such that wages will rise in lock step, but that isn’t guaranteed. In this hypothetical economy though, if wages adjusted perfectly, then I don’t think you would have the other problems of uncertainty and trust you identified.
I feel like you could read the causality in reverse, if there was high but steady inflation year over year, wages would de-stick-ify since workers wouldn't sign employment contracts unless they got consistent raises to keep pace with prices. In an unstable/uncertain inflation landscape, that kind of bargaining (individual or collective) wouldn't happen as much since workers wouldn't be expecting high inflation when signing onto jobs/unions wouldn't know to prioritize such agreements ahead of time. So we can see shrinking real wages as a consequence of uncertain inflation not the other way around.
Another terriific review of our economy and some of its complicated levers. A wonderful read
Thank you!
These both seem like perfectly reasonable culprits for why inflation is bad, but I think they are more second order effects. Primarily, inflation is bad because prices are less sticky than wages. Certainly this is more true when inflation is volatile and hard to predict. In your first example of an economy of 10% inflation per annum, you can imagine a scenario where over time it is predictable enough such that wages will rise in lock step, but that isn’t guaranteed. In this hypothetical economy though, if wages adjusted perfectly, then I don’t think you would have the other problems of uncertainty and trust you identified.
I feel like you could read the causality in reverse, if there was high but steady inflation year over year, wages would de-stick-ify since workers wouldn't sign employment contracts unless they got consistent raises to keep pace with prices. In an unstable/uncertain inflation landscape, that kind of bargaining (individual or collective) wouldn't happen as much since workers wouldn't be expecting high inflation when signing onto jobs/unions wouldn't know to prioritize such agreements ahead of time. So we can see shrinking real wages as a consequence of uncertain inflation not the other way around.
CBDCs are also dependent on this trust, right?
Definitely, I would say all currencies are!