This is an issue that I spend a lot of time thinking on. Having played a few MMORPGs and a few Forum based RPGs it is interesting to compare the different types. This is my first post, so forgive my slight intrusion to the debate (I've been following Planeshift for a few years now but only just signed up to the forums. I also haven't logged into the game for since some older release). A lot of good points made so far. Many of which I can agree with or at least understanding the logic of an idea that I don't quite agree with.

I've noticed that there tends to be common personality types that play games, as I'm sure you have as well. People have a tendency to hold items and money. I do it. So these items become semi-permanent. People that save up are not spending. So the net flow of wealth is not moving out of the game as you might hope. This would seem to conclude with the ideas of inflation above. It would make sense that item decay would help to rectify this. But I'd doubt if it was enough to put a cap on inflation. Plus many players may find tax and item decay to be a hinderance to gameplay (I did mean gameplay and not leveling).

As players get wealthy they want to splash out and buy the best items. So item decay and repair costs may become a drop in the ocean of vast wealth that they have accumulated. Also, as has been mentioned above with the tribesman example, new players will have a much bigger gap to fight in order to reach the most expensive items if new ones are constantly released. Which is why I make this suggestion: RP only items. They would need to be bought from NPCs (for wealth out flux reasons).
 That is, items that look cool, perhaps very ornate yet have no useful or perhaps very low level stats. The real point of ownership with these items is a status symbol. Rich players spend their wealth in order to look cooler yet they also help with the net outflux of wealth. But, not everyone wants to look cool and perhaps no one would buy a 'useless' and expensive item. So back to the drawing board with the need for greater ingenuity. Then perhaps, the items can only be purchased at a certain time of the year or perhaps can only be purchased in one particularl year, ie rarity. This would attract players to buy them. Of course they will want to sell them at some point but at least they have spent some of their wealth in acquiring them (subject to item decay as prescribed in the previous posts; more expensive items = more expensive repair costs). I see no reason that the most expensive items should necessarily be the most useful.
  I think this naturally leads to the idea that the most powerful items in the game should involve strict roleplay as opposed to a simple purchase. Does it not ruin the actual value of the item if you can merely 'buy' it for a million trias (for example)?

 I do not see the inflation issue as something that can be solved with a single answer, infact I suspect it will need a dynamic response that changes over time. I would also suggest that items are more expensive in activity hot spots such as cities, perhaps exponentially so, then cheaper out in a village/remote shop.

I look forward to more receiving feedback and reading further discussion from the current posters.