Inflation Is Here, and It Is Going to Get Worse

Thursday, February 24, 2011
By Paul Martin

By: Frank Shostak
Market Oracle
Feb 24, 2011

As compared to September last year, the growth momentum of price indexes shows visible strengthening. Year on year, the rate of growth of the consumer price index (CPI) rose to 1.6 percent in January from 1.5 percent in the month before and 1.1 percent in September last year. Also the growth momentum of the consumer price index less food and energy has strengthened in recent months. The yearly rate of growth climbed to 1 percent from 0.8 percent in December and 0.6 percent in October.

Economists blamed the increase in price indexes on the higher prices of apparel, airline fares, and shelter costs. Note that attempting to explain general increases in prices in terms of the components of the price index is not an explanation, because it doesn’t address the key causes.

Is Inflation about Price Rises?
The fundamental problem here is a failure to define the problem properly. The essence of inflation is not a general rise in prices as such but an increase in the supply of money, which in turns sets in motion a general increase in the prices of goods and services.

As Mises explained in his essay “Inflation: An Unworkable Fiscal Policy,”

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term “inflation” to refer to the phenomenon that is an inevitable consequence of inflation, that is, the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. …

As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.

The Rest…HERE

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