Inflation

In economics, inflation is a general rise in the price of goods and services in relation to purchasing power. It is an economic phenomenon whereby fiat currency is devalued over time due to an increase in the total money supply.

Prices tend to go up when demand from consumers exceeds the normal capacity of producers to supply goods and services. An excess supply of goods and services tends to put downward pressure on prices.

High inflation undermines the economy's ability to generate long-lasting growth and job creation. Consumers and investors may put off purchases because of uncertainty. High inflation erodes the value of incomes and savings. People on fixed incomes, including the elderly and poor are particularly vulnerable to inflation. Social Security payments are adjusted to inflation.

The common measure for consumers is the Consumer Price Index (CPI). Economists prefer a broader measure, the "implicit GDP deflator", which includes the prices of non-consumer items like highways and factories.

In the U.S. the inflation rate was near zero in 2009.

Hyperinflation

Hyperinflation is out of control inflation and has occurred when there is a massive imbalance between the supply and demand and a complete loss of confidence in the currency. It has occurred when prices are decontrolled by central governments, like in the economic collapse of the USSR, where inflation reached over 1000% in some areas.

The worst episodes of hyperinflation historically have been in Weimar Germany in 1923 (after World War I), Hungary after World War II, and Zimbabwe in the late 2000s.

Politics and inflation

Bruce Bartlett wrote:

• Inflation is fundamentally a monetary phenomenon. The inflation of the 1970s came about primarily because Federal Reserve chairman Arthur Burns gunned the money supply to get Richard Nixon re-elected in 1972. He was followed by G. William Miller, appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse. [2]

Politics and inflation

Bruce Bartlett wrote:

• Inflation is fundamentally a monetary phenomenon. The inflation of the 1970s came about primarily because Fed chairman Arthur Burns gunned the money supply to get Richard Nixon re-elected in 1972. He was followed by G. William Miller, appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse. [3]

Measures of inflation

For a more detailed treatment, see consumer price index.

The most widely used measure of inflation is the consumer price index (CPI). It reflects changes in the price of a representative "basket" of goods and services sold:

• food
• housing
• transportation
• furniture
• clothing
• recreation
• other items

The inflation rate is expressed as a percentage increase in average prices over a year. For example, if the cost of the CPI "basket" rises from $100 one year ago to $102 today, the current inflation rate is 2 per cent. When the CPI rises, the purchasing power of the average consumer's dollar falls.

Sources

• Inflation converter by year

See Also

• Phillips curve

• Inflation hedge

• Economic collapse: Inflation, Agflation, Deflation, Stagflation, Hyperinflation, Panic of 1907, Panic of 1893, Panic of 1837

• Stock market crash (Stock market crash of 1929) leading to Great Depression (Economic depression)

• Economic bubbles: The Coming Derivatives bubble, Real estate bubble (Subprime loans, Bailout, Obama administration corporate bailouts), Dot com bubble (Tulip mania)

• Financial Crisis of 2008 leading to Recession of 2008 (Recession), Economic stimulus, American Recovery and Reinvestment Act of 2009, Recovery Summer 2010

• Obamanomics: Obamunism Economic planning of the Obama administration fiscal policy, Obama administration monetary policy, Obamacare, Federal funding via Crony capitalism (Obama donor list), Deficit spending, Similarities between Communism, Nazism and liberalism, Obamageddon

• National debt: Federal Reserve System's Ponzi scheme of Quantitative easing-Debt monetization-Fiat currency through Money supply-Treasury bills bought mostly by China and Japan

• John Maynard Keynes' liberal Keynesian economics of Barack Obama
• Ludwig von Mises' conservative libertarian Austrian economics and Fiscal conservatism-Conservative economic policies of Ron Paul

External links

• "Purchasing Power of Money in the United States from 1774 to 2008", translates the value of a dollar in one year to the value today or any year