Rethinking Inflation: New Perspective from an Old Indicator
Article first published online: 18 OCT 2012
© 2012 The Author. Economic Affairs © 2012 Institute of Economic Affairs. Published by Blackwell Publishing, Oxford
Volume 32, Issue 3, pages 102–106, October 2012
How to Cite
Ungewitter, M. (2012), Rethinking Inflation: New Perspective from an Old Indicator. Economic Affairs, 32: 102–106. doi: 10.1111/j.1468-0270.2012.02182.x
- Issue published online: 18 OCT 2012
- Article first published online: 18 OCT 2012
- inflation targeting;
- national debt;
- interest rates
The concept of inflation is central to economic theories, investment outlooks and policy prescriptions. It is generally understood as an over-issue of money and credit which increases the general level of consumer prices. In light of today's ongoing debt crises, it is obvious that too much money and credit were created in the millennial decade. Yet the period is typically characterised as a disinflationary environment.
This article examines inflationary processes from a variety of perspectives. It is argued that 1) inflation is an abuse of money and credit which may or may not coincide with rising consumer prices; and 2) a classic definition of inflation – the premium on gold in local currency terms – remains relevant today, providing a sanity check on conventional measures such as CPI, PCE and the GDP deflator. A simple model of ‘structural inflation’ is developed in which the inflation tax may either be levied through consumer prices or stored up in the national debt.