The compression of French wholesale prices during inflation, 1919-1926

It has been recognized generally that prices, under inflation, when measured in terms of the depreciated currency, tend to rise. However, when measured in terms of gold, inflation may serve to depress the price level below that which prevails in stable money countries. This phenomenon characterized the French inflation of 1919-1926. The explanation of the relative compression of the French price level is to be found in the enterpriser price policy, the lower costs, the increasing volume of production, and the reduced purchasing power which characterized the period. According to the purchasing power parities theory, the rates of exchange should have equalized French and world prices. Their failure to do so indicates that this theory presents an oversimplified view of the elements conditioning price structures.