The theoretical analysis of inflation has its origin in the attempts to explain the so-called ‘price revolution’ of the sixteenth and seventeenth centuries. This is the term used to describe the secular rise in commodity prices which occurred throughout Europe, punctuated by sharper, localised fluctuations around a general trend. Then as now, many of the operative short-run factors were widely recognised. Harvest failure, war, disease and currency manipulation all exercised a disproportionately severe influence upon price behaviour in a continent whose predominant economic activity remained agriculture — notwithstanding the rapid dissolution of the feudal social structure and the growing diversification and interdependence of national markets. Such disturbances by themselves, however, could not account for the persistence and generality of the price inflation, which continued at an average rate of around 2 per cent a year for well over a century.
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