The Sociopolitical Analysis of Global Inflation: A Theoretical and Empirical Examination of an Influential Basic Explanation

Abstract

Abstract. One variant of the influential sociopolitical model of inflation is examined, a version distinguished by its econometric testable form and its use of relative deprivation as a principal efficient cause of global inflation. Hence its relevance to the contemporary debate on the nature and origins of the inflationary process. Specifically, the model postulates that the rate of inflation in a country is inversely related to its level of per capita income (and social security expenditure) and directly related to its degree of income inequality. It emerges from our analysis, however, that the association between the level of economic development and the comparative propensity to inflate is of theoretically ambiguous sign. Also, the empirical robustness of the postulated relation is in doubt and the multivariate analysis is itself sensitive to the inclusion/ exclusion from the sample of outlier countries. More positively, the general focus of the model on fundamental as opposed to proximate determinants of inflation is to be welcomed. The message is that sociopolitical analysts must sharpen their analytical tools and, in the spirit of the model, formulate testable propositions in an area where economists have tended to overemphasize ‘mechanical’ relationships/solutions.