Inflation is defined as a rise in an economy's overall price of goods and services. Inflation has escalated as a result of various government policies, a lack of raw materials, and worldwide crises such as Covid-19. It has had varying degrees of influence on practically every factor impacting businesses, particularly consumer behavior. Inflation has caused customers to spend less, making the situation much worse for industries. Hence, in this episode of the Capitalisn’t podcast, London School of Economics' Mervyn King discusses capitalism and inflation where he explains various successes and pitfalls of economic models, the dangers of future policy initiatives, and the political forces that may affect their execution. Capitalism and inflation When asked about what caused Mervyn to foresee the impact of inflation before there was any evidence of it, Mervyn suggests that people just overlooked a lot of data that was there in front of them. Central banks were all duped by an inflation theory that claimed inflation is primarily driven by expectations. He says that if people believe inflation will remain low, they will set prices and incomes accordingly. He contends that capitalism and inflation are inextricably linked. He backs up his claim by stating that, of all economic models developed, the official inflation target is what drives people's expectations. He believes that the pandemic also played a part in the rise in inflation. The pandemic, according to King, did at least temporarily restrict prospective supply. And the last thing, anyone may want to do in reaction to a fall in potential supply, according to him, is increase demand by printing money, which is exactly what central banks did. When discussing the current state of the globe in terms of capitalism and inflation, King believes that it is realistic to expect the one-time spike in energy and food prices to have unwound. We can not foresee what will happen anywhere in the world at any time, thus projecting where inflation will take nations is pointless. Finally, Mervyn indicates that we do need interest rates to return to more normal levels, which will be a tough period for a few years as we adjust to reduced asset values and higher interest rates. This will force the zombie companies that have survived for the previous decade or so because they could live while interest rates were essentially zero to admit that they are unable to repay their loans. It is critical that individuals understand how capitalism and inflation function in order to invest their money sensibly. The above are some useful insights on the subject. Read More In order to gain a deeper understanding of other determinants of the future of work and the business world visit Chicago Booth Accelerated Development Program (Chicago Booth ADP) offered by the University of Chicago Booth School of Business.