inflationary psychology

Inflationary Psychology

How increased inflation influences the behavior of economic actors. It is commonly believed that people borrow more during high inflation because they wish to have more cash to buy goods and services in case prices continue to rise. Prices then rise anyway because of the increased cash in circulation and higher demand for goods and services. In other words, inflationary psychology predicts that inflation can become self-perpetuating. See also: Behavior Economics.

inflationary psychology

Consumers' belief that prices will inevitably rise, a belief that drives them to speed up purchases especially of real assets (that is, gold, diamonds, and real estate) and avoid investment in financial assets (that is, stocks and bonds). As a result, the consumers themselves can cause the inflation that they fear will occur.
References in periodicals archive ?
8 percent) long enough to purge inflationary psychology.
But without dramatic evidence of a weakening economy, the greater danger is a renewal of inflationary psychology.
And once an inflationary psychology takes hold, it can be difficult and costly to reverse.
If, through presidential leadership, the United States were to mitigate the inflationary psychology that propelled inflation, economic activity would advance as inflation fell.
Burns believed that an incomes policy would engender a reduction in inflationary psychology, or expectations, as well as inflation itself.
Governors and district bank presidents worried about loss of credibility in the financial markets and the potential renewal of inflationary psychology that was dampened significantly during the Volcker era.
I wish it were possible to lay out in advance exactly what conditions have to prevail to portend a buildup of inflation pressures or inflationary psychology.
As major factors of economic instability next year, Hyundai cited delays in world economic recovery due to a possible war between the United States and Iraq, domestic financial market jitters arising from stock price plunges, worsening of trade and service balances, inflationary psychology linked with excessive liquidity, rise in oil and cereal prices and potential deflation arising from increased home loans.
Instead of trying to manage the business cycle, we have increasingly focused on managing the inflationary psychology of households and businesses.
By striking a balance between money supply and its demand, that is, by providing a relatively stable purchasing power for the dollar, the central bank has done a remarkable job in building its credibility and keeping the inflationary psychology subdued.
Angell dissented because he believed that the persisting indications of rising inflation and the related deterioration in inflationary psychology called for a prompt move to tighten monetary policy.