Are sustained. A once-only increase in the rate of value-added tax will immediately put up prices,

But this does not represent inflation, unless the indirect effects of the VAT rise have repercussions

On prices in periods after the direct effects.

Accounts of the causes of inflation are numerous. The most popular arguments are that it is

Caused by excess demand in the economy, that it is caused by high costs and that it results from

Excessive increases in the money supply.

An excess of demand causes producers to raise their prices — but this leads workers to demand

Higher wages to maintain their living standard; this causes higher demand and the process begins

Again. Similarly, if under the cost-push argument the cost increases stimulating price rises and

Wage costs (which represents most of the total net costs of the economy), firms can still only raise

Their prices if the demand is there for their goods to sell — if not, high costs merely bankrupt them.

These causes amount to an attempt by a nation to live beyond its means, or to enjoy a living standard

Higher than that allowed by its output and borrowing.

When oil prices rose in the 1970s, countries without oil suffered a loss of their real income and

Should have accepted a cut in living standards; unable to impose a cut, however, governments attempted

To maintain higher levels of income than were merited by the products to be bought by