Nipping Inflation in the Bud In other words, supply shocks, if you do not allow them to propagate or [turn into] inflationary expectations that become self-fulfilling, inflation will die as the shocks die. There will be very little second-order effects. In contrast, if you read the most common textbook about Latin America, inflation ended up having a life of its own. Everybody expects inflation.
What happens? The currency depreciates. Prices increase. Wages increase. Inflation begins to have a life of its own. And the only way to restore order is to show to everybody that the central bank is willing to cause a deep recession to cut the [wage-price spiral] cycle.