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.