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Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had. This is an effect that can have various causes.

by y4mi 9y ago

Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had. This is an effect that can have various causes. One of them is that the government or Central Banks printed more money. Another way this could happen is if there was an influx of income in your region. This effect is less visible in today's economy with cheap and easy shipping of products, but can still be observed in objects that are pretty much impossible to ship. The only example that comes to my mind right now is housing.

WalterBright 9y ago
> Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had. That's a tautological definition. Money's value is determined by supply and demand, just like everything else. If there's more money representing the same amount of goods, the money gets devalued and you have inflation. To understand inflation one must understand how money is created and destroyed, i.e. what determines the supply of money. Spending money faster does not create more supply, and McDonald's raising their prices is not inflationary because they did not create more money. Money is created by printing it, or by the creation of debt. Money is destroyed by burning it or by paying down debt.
- y4mi 9y ago
  Well, Wikipedia seems to agree with that tautological definition. While McDonald's alone increasing their price wouldn't be inflation, it could become that if a significant part of the businesses in that location increased theirs as well. It's just really hard to find examples of this today. It's mostly limited to holiday hotzones, rent and similar.
  - WalterBright 9y ago
    > Wikipedia seems to agree with that tautological definition. It reminds me of when I saw a technical analyst on CNBC sagely note that the reason the P/E ratio was high was because the Price rose faster than the Earnings. Sheesh! It is not inflationary if McDonald's increases their prices. Spending more at McDonald's means you have less to spend elsewhere. Your spending does not create more money to replace it. Consider if the money was a fixed number gold coins instead, and you'll see that anyone raising prices does not result in more gold coins.
    - y4mi 9y ago
      well, now we've gone full circle. Inflation does not mean that the amount of money was increased. This is "just" the primary way a government or central bank controls the inflation The definition of inflation is limited to the devaluement of a currency. This means that it can only be evaluated by comparing that currency to actual goods / services that can be bought / used.
- EGreg 9y ago
  All definitions are tautological :)

by y4mi 9y ago

WalterBright 9y ago

> Inflation means, afaik, only that the same amount of money has lesser purchasing power than it previously had. That's a tautological definition. Money's value is determined by supply and demand, just like everything else. If there's more money representing the same amount of goods, the money gets devalued and you have inflation. To understand inflation one must understand how money is created and destroyed, i.e. what determines the supply of money. Spending money faster does not create more supply, and McDonald's raising their prices is not inflationary because they did not create more money. Money is created by printing it, or by the creation of debt. Money is destroyed by burning it or by paying down debt.

y4mi 9y ago
Well, Wikipedia seems to agree with that tautological definition. While McDonald's alone increasing their price wouldn't be inflation, it could become that if a significant part of the businesses in that location increased theirs as well. It's just really hard to find examples of this today. It's mostly limited to holiday hotzones, rent and similar.
- WalterBright 9y ago
  > Wikipedia seems to agree with that tautological definition. It reminds me of when I saw a technical analyst on CNBC sagely note that the reason the P/E ratio was high was because the Price rose faster than the Earnings. Sheesh! It is not inflationary if McDonald's increases their prices. Spending more at McDonald's means you have less to spend elsewhere. Your spending does not create more money to replace it. Consider if the money was a fixed number gold coins instead, and you'll see that anyone raising prices does not result in more gold coins.
  - y4mi 9y ago
    well, now we've gone full circle. Inflation does not mean that the amount of money was increased. This is "just" the primary way a government or central bank controls the inflation The definition of inflation is limited to the devaluement of a currency. This means that it can only be evaluated by comparing that currency to actual goods / services that can be bought / used.
EGreg 9y ago
All definitions are tautological :)