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Inflation is the expansion of the money supply (eg by money printing). A long term rise in prices (houses, stocks, CPI) is the consequence of inflation, just as

Inflation is the expansion of the money supply (eg by money printing). A long term rise in prices (houses, stocks, CPI) is the consequence of inflation, just as a rising water level in a lake is the result of rain. The global economy is like a lake with growing capacity, so prices UNDERSTATE the true rate of inflation.

thelamest 4y ago
This is not the common definition (cf. https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation), but a narrower one (https://en.wikipedia.org/wiki/Monetary_inflation https://en.wikipedia.org/wiki/Monetary_inflation). Semantic difference, but one that remains a little confusing and harkens back to old economic debates. Focusing on policy causes of price changes is preferred among authors who want to tie inflation only/mostly to central bank actions, but mainstream economics, with Friedman etc., works with a slightly wider model (money supply is a key lever, but other things matter as well).
- yyy888sss 4y ago
  Defining inflation as rising prices is the newer, MORE narrow definition as measurements such as CPI are capturing the downstream effects of a fundamental cause (creating money).
  - whimsicalism 4y ago
    Inflation is and always has been about changes in the price level. If velocity halves and money supply doubles, there is no additional price level change - so it is not a "fundamental cause."
AnimalMuppet 4y ago
It's the expansion of the money supply faster than the expansion of the real economic output.
- whimsicalism 4y ago
  Money supply * velocity faster than real output.
  - AnimalMuppet 4y ago
    True. And it occurs to me that there's a positive feedback loop there. When inflation starts, people tend to pull their purchases forward in time, if they can - they buy before the price goes up. That increases the velocity, which is inflationary, even if the money supply does not increase any further.

thelamest 4y ago

This is not the common definition (cf. https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation), but a narrower one (https://en.wikipedia.org/wiki/Monetary_inflation https://en.wikipedia.org/wiki/Monetary_inflation). Semantic difference, but one that remains a little confusing and harkens back to old economic debates. Focusing on policy causes of price changes is preferred among authors who want to tie inflation only/mostly to central bank actions, but mainstream economics, with Friedman etc., works with a slightly wider model (money supply is a key lever, but other things matter as well).

yyy888sss 4y ago
Defining inflation as rising prices is the newer, MORE narrow definition as measurements such as CPI are capturing the downstream effects of a fundamental cause (creating money).
- whimsicalism 4y ago
  Inflation is and always has been about changes in the price level. If velocity halves and money supply doubles, there is no additional price level change - so it is not a "fundamental cause."

AnimalMuppet 4y ago

It's the expansion of the money supply faster than the expansion of the real economic output.

whimsicalism 4y ago
Money supply * velocity faster than real output.
- AnimalMuppet 4y ago
  True. And it occurs to me that there's a positive feedback loop there. When inflation starts, people tend to pull their purchases forward in time, if they can - they buy before the price goes up. That increases the velocity, which is inflationary, even if the money supply does not increase any further.