What can account for the different contemporaneous inflation experiences of various
countries, and of the same country over time? We present an analysis of the determination
of inflation from a political economy perspective. We document a positive correlation
between income inequality and inflation and then present a theory of the determination
of inflation outcomes in democratic societies that illustrates how greater inequality
leads to greater inflation, owing to a desire by voters for wealth redistribution.
We conclude by showing that democracies with more independent central banks tend
to have better inflation outcomes for a given degree of inequality.