The ill effects of inflation, particularly in its later stages, are so widespread and damaging for the economy and society that there is a general agreement on the need to check its progress. However, the very fact that inflationary process is a highly complex phenomenon, and that it is not possible to pin point its causes, makes the choice of remedies and their use also equally difficult. Therefore, while talking about the remedies of inflation, we should keep in mind the following facts.
1. In a market economy, adjustment of individual prices is continuously taking place in response to changes in demand and supply forces. Further, there is a web of input-output relations between different segments of economic activities. An inflationary process, therefore, can be triggered by any price adjustment. By inference, it is not possible to predict the emergence of inflation with any degree of certainty. It is equally impossible to monitor any given probable cause of inflation to ensure that inflation does not materialize.
2. On account of a continuous adjustment of prices on a random basis, the presence of inflation having come into existence becomes known only when it has gathered some strength. In other words, it is not possible to take any foolproof preventive action against inflation. At the most, the authorities can keep an eye on those macro variables, which may be rated as having a greater potential of triggering inflation. For example, the authorities know that if they resort to deficit financing and pump in additional money and credit in the market, demand and prices are likely to increase. Similarly, it can be presumed that the probability of the emergence of inflation increases if there is a sudden upsurge in demand such as in a war, or if there is a sudden decline in supplies such as due to some natural calamity.
3. Inflationary process is a self-feeding cumulative one. Consequently, the type of the remedial measures has to be adjusted accordingly. It is safer to mount a multi-frontal attack on inflation. Also their intensity should match the intensity of the inflationary process.