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Six Things to Consider About Inflation

Saturday, October 22, 2016 17:15
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mises.org / Emile Woolf / October 22, 2016

As an economic term, “inflation” is shorthand for “inflation of the money supply.”

The general public, however, usually takes it to mean “rising prices” which is not surprising since one of the common effects of an increase in the money supply is higher prices. However, supporters of government policy often say, “If quantitative easing (QE) and its terrible twin, fractional reserve banking, are so awful, why have we got no inflation?”

To address this conundrum, there are six related factors that are noteworthy:

Number One: we need to be clear about the terms we are using. Instead of talking about “inflation” in the loose sense, as above, it is more accurate to speak of currency debasement, which is the real impact of fiat money creation by any means. We experience currency debasement as declining purchasing power. Two sides of the same coin: one reflects the other.

Number Two: the above question overlooks the fact that the measures used in this process are inherently unreliable. The decline in purchasing power is most evident when objectively measured by reference to an essential commodity such as oil — rather than against the Consumer Price Index (CPI). The CPI purports to reflect the prices of ingredients selected by government statisticians in what they consider to be a typical, but notional, basket of “consumer goods and services.” This basket, whose contents are varied periodically, results in an index that cannot be trusted as an objective barometer. It supports the wizardry of non-independent Treasury statisticians, and relates to goods that scarcely feature in your shopping basket or mine.

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The post Six Things to Consider About Inflation appeared first on Silver For The People.

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