I’m not sure if is the best place for this question, but it’s something I’ve only ever seen come up on this sub so hopefully it’s a good place for an answer.
Multiple times here I’ve seen people say that inflation is not a rise in prices. This is not how the word is normally defined or used, either by laypeople or economists.
What I’m trying to understand is where this idea comes from. Because clearly it’s coming from somewhere. Somewhere there must be people writing articles or having discussions where “inflation” is used in this specific way. A few times I’ve asked people where their definition comes from and been met by silence.
In: Economics
I don’t see or hear a lot of people claiming that inflation is not a rise in prices, so maybe a little more detail on where you see this argument. If it’s just from random people on the street it may just be ignorance. There’s a lot of incorrect assumptions about a lot of things in the world. Some people think the Earth is flat, some people think we didn’t land on the moon, some people think jet fuel can melt steel beams. Our education system is not perfect and disinformation on the internet is a powerful thing
Inflation is very clearly defined as a general increase in prices across the economy. This is not contentious or information that is not commonly known.
Are you referring to people saying that inflation is the rate of increase rather than the level of prices?
Some people prefer to look at it like a reduction in the value of money, i.e. you now need more money to exchange for the same stuff. And while that’s a useful simplification in some contexts it’s not exactly right. In the short term, some prices will increase more than others suggesting it’s the goods themselves increasing in price.
Money devalues with time. Taking a mortgage, or credit of any sorts from the bank doesn’t really mean you get to use other people’s money,
In a way, it creates a void of money, and at that moment all other money are slightly devalued.
In my basic mind,
Inflation is the devalue of money, so increase in prices is a byproduct. Takes just as much effort to make the goods as before, but money is worth less now.
Some people see inflation not as an increase in prices but is a lowering of the individual value of the lowest denomination within that currency system.
From their point of view it’s not that the can of coke cost more money as much as the money isn’t worth as much as it was.
It’s basically seen it as a reduction in resource value as opposed to an increase in necessity cost
The rise in prices is how we measure inflation, the same way you would measure the consumption of a car by seeing how many kilometers you travelled with a full tank of gas.
The cause of the change in consumption is something external. For example you travelled on the highway , you travelled in the mountains , you raced the car in a race track etc.
The cause of inflation is something external, like a war , pandemic , bad economic choices by the government etc. . The measure of the inflation is the rise(or fall) of prices 🙂
I’ve never heard this before, but as I held some beginners macro lectures, I can hazard a guess. Quoting the Wiki here: [https://en.wikipedia.org/wiki/Neutrality_of_money](https://en.wikipedia.org/wiki/Neutrality_of_money)
>Neutrality of money is the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real variables, like employment, real GDP, and real consumption.
ELI5: If a banana costs 2$ now, instead of 1$, it doesn’t matter, because if the prices rise, your employer should pay you double the wage. Then the real time you spend working for a banana is the same.
(This is a very simple approximation and is usually rejected on short timescales. You can read more on Wikipedia, it has quite nice explanations about this topic.)
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