At lunch today, I decided to make a foolish claim (on other occasions  they just emerge spontaneously). Specifically, that inflation is not a problem. Why? Consider the budget constraint of the consumer. Inflation scales up the left and right hand side of the budget constraint by the same amount leaving it unchanged. Mark Satterthwaite pointed out that I was assuming that prices an income would adjust all at once. I was, he noted, ignoring the fact that many contracts were denominated in nominal dollars rather than inflation adjusted dollars. Ok, but this raises the question of why we write contracts in this way. Why not contracts based on inflation adjusted dollars? Luciano de Castro piped in that such contracts were normal in Brazil. In fact, salaries were paid the same way. Jonathan Weinstein said that this makes the method by which one computes inflation very important. In particular, it has to be immune to manipulation (he also observed that making a switch to inflated adjusted contracts would be like printing money…..but once). OK, but this means that inflation is not the issue but rather the absence of a reliable index of it. Then, Sasa Pekec and Uri Weiss argued that inflation allowed governments to break promises made earlier, so why would Governments agree to doing away with it? Didn’t get to the bottom of it as we had to break up.