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That is incorrect. Inflation is defined as the expansion of the money supply, CPI is measured as the change in price of a basket of goods minus volatile things

That is incorrect. Inflation is defined as the expansion of the money supply, CPI is measured as the change in price of a basket of goods minus volatile things like energy and food.

SkyMarshal 14y ago
I agree that inflation should be officially defined as an expansion of the money supply, with rising prices being simply a result of that rather than the definition of it. But the actual textbook definition is, simply, a rise in the general price level of goods and services [1]. This unfortunately makes discussions of inflation ambiguous - is it being caused by expansion of the money supply, or increase in demand, or decrease in supply, or falling interest rates... etc? [1]: http://en.wikipedia.org/wiki/Inflation http://en.wikipedia.org/wiki/Inflation
- seanmcdirmid 14y ago
  Falling interest rates usually result in increases in circulating money supply. Supply/demand definitely has an effect, but then so do increased living standards (more taxes, more pay to those who stock coke machines). Coke in Switzerland is not expensive because of inflation. With increased living standards, lower end goods necessarily become more expensive while higher end goods become cheaper (or at least don't rise so much).
- Symmetry 14y ago
  Confusingly, while rises in the general price level are called inflation and that's what pretty much everybody means when they talk about inflation a proper term for an increase in the money supply is also inflation[1]. I would strongly recommend people not use the term "inflation" that way unless you're careful to distinguish the sense in which you're using it, since you'll usually just end up confusing everybody otherwise. [1]http://en.wikipedia.org/wiki/Monetary_inflation http://en.wikipedia.org/wiki/Monetary_inflation
  - tsotha 14y ago
    This has always irritated me. Normal people and economists use the same word to describe two different albeit somewhat related things. If you include debt (and I think you have to), we had some pretty severe deflation starting 2008. But the prices people pay for the things they buy went up during that time period, something that can happen while you're in a deflationary economy.
    - SkyMarshal 14y ago
      >Normal people and economists use the same word to describe two different albeit somewhat related things. It's actually worse because economists themselves use the same word to describe the two different concepts. I agree with Symmetry above that the simplest 90% solution is just use "inflation" for general rise in price levels regardless of cause, and "monetary inflation" for money supply expansion.
  - pseut 14y ago
    An increase in the volume of a helium-filled balloon is also "inflation." As an economist, I can assure you that I mean "price inflation" when I say "inflation" without a qualifier. So does everyone I talk to. It doesn't need to be confusing.
    - SkyMarshal 14y ago
      This is a nitpick I have about economics - the language you use for this doesn't distinguish the causes of inflation, just lumps them all together. Obviously it works well enough for mainstream economics, but why does no one explicitly qualify inflation as "price inflation", "demand inflation", or "monetary inflation"?
      - nhaehnle 14y ago
        Economists do distinguish and discuss the causes of inflation. Search for "demand pull inflation", "cost push inflation" or "imported inflation". You won't see "monetary inflation" that much in modern economics discussions because it simply isn't that relevant empirically for understanding the development of the price level.
ars 14y ago
> Inflation is defined as the expansion of the money supply That's not accurate. Inflation is the expansion of the money supply WITHOUT also the expansion of the money demand (from population growth and economic expansion). Which is why the gold standard is so problematic - it would freeze the money supply, but the demand keeps going up, so gold would cause deflation with all it's concomitant problems.

That is incorrect. Inflation is defined as the expansion of the money supply, CPI is measured as the change in price of a basket of goods minus volatile things like energy and food.

SkyMarshal 14y ago

I agree that inflation should be officially defined as an expansion of the money supply, with rising prices being simply a result of that rather than the definition of it. But the actual textbook definition is, simply, a rise in the general price level of goods and services [1]. This unfortunately makes discussions of inflation ambiguous - is it being caused by expansion of the money supply, or increase in demand, or decrease in supply, or falling interest rates... etc? [1]: http://en.wikipedia.org/wiki/Inflation http://en.wikipedia.org/wiki/Inflation

seanmcdirmid 14y ago
Falling interest rates usually result in increases in circulating money supply. Supply/demand definitely has an effect, but then so do increased living standards (more taxes, more pay to those who stock coke machines). Coke in Switzerland is not expensive because of inflation. With increased living standards, lower end goods necessarily become more expensive while higher end goods become cheaper (or at least don't rise so much).
Symmetry 14y ago
Confusingly, while rises in the general price level are called inflation and that's what pretty much everybody means when they talk about inflation a proper term for an increase in the money supply is also inflation[1]. I would strongly recommend people not use the term "inflation" that way unless you're careful to distinguish the sense in which you're using it, since you'll usually just end up confusing everybody otherwise. [1]http://en.wikipedia.org/wiki/Monetary_inflation http://en.wikipedia.org/wiki/Monetary_inflation
- tsotha 14y ago
  This has always irritated me. Normal people and economists use the same word to describe two different albeit somewhat related things. If you include debt (and I think you have to), we had some pretty severe deflation starting 2008. But the prices people pay for the things they buy went up during that time period, something that can happen while you're in a deflationary economy.
  - SkyMarshal 14y ago
    >Normal people and economists use the same word to describe two different albeit somewhat related things. It's actually worse because economists themselves use the same word to describe the two different concepts. I agree with Symmetry above that the simplest 90% solution is just use "inflation" for general rise in price levels regardless of cause, and "monetary inflation" for money supply expansion.
- pseut 14y ago
  An increase in the volume of a helium-filled balloon is also "inflation." As an economist, I can assure you that I mean "price inflation" when I say "inflation" without a qualifier. So does everyone I talk to. It doesn't need to be confusing.
  - SkyMarshal 14y ago
    This is a nitpick I have about economics - the language you use for this doesn't distinguish the causes of inflation, just lumps them all together. Obviously it works well enough for mainstream economics, but why does no one explicitly qualify inflation as "price inflation", "demand inflation", or "monetary inflation"?
    - nhaehnle 14y ago
      Economists do distinguish and discuss the causes of inflation. Search for "demand pull inflation", "cost push inflation" or "imported inflation". You won't see "monetary inflation" that much in modern economics discussions because it simply isn't that relevant empirically for understanding the development of the price level.

ars 14y ago

> Inflation is defined as the expansion of the money supply That's not accurate. Inflation is the expansion of the money supply WITHOUT also the expansion of the money demand (from population growth and economic expansion). Which is why the gold standard is so problematic - it would freeze the money supply, but the demand keeps going up, so gold would cause deflation with all it's concomitant problems.