Generalised conflict inflation: Rigidities, indexation, and their endogeneity on the path to hyperinflation

Ryan Woodgate

No 277/2026, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: This paper advances post-Keynesian conflict inflation theory in four main ways. First, it resolves a longstanding ambiguity surrounding the speed-of-adjustment parameters in conflict inflation models. It is argued that these parameters reflect the costs of adjusting wages and prices, and the existence of staggered contracts. Second, drawing on this reinterpretation, we show how indexation can be formally incorporated into the Generalised Conflict Inflation Model (Woodgate, 2026), meaning that both inflation expectations and indexation explicitly feature in the same model-a novelty among conflict inflation models. Third, adopting a stochastic staggered contracts interpretation, we show this extension implies distributions of real wages among cohorts of workers and firms in equilibrium, with dispersion widening at higher rates of steady-state inflation. Fourth, we argue that rather than simply suffering this erosion of real income, workers and firms raise the degree of indexation and reset frequency over the long run as trend inflation rises, and show that the resulting shorter effective contract durations, while protecting real incomes, lower the degree of distributional conflict required to trigger hyperinflation.

Keywords: Inflation; distribution; rigidities; stability; hyperinflation (search for similar items in EconPapers)
JEL-codes: D33 E12 E31 (search for similar items in EconPapers)
Date: 2026
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