Question:

Why is inflation perceived as the sole cause of price increase?

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It is true that the growth of money supply in excess of the growth in money demand causes inflation - by definition.

This is when we see the price of most goods rise by roughly the same percentage.

But price increases may also be caused by shifting market fundamentals - if supply decreases relative to demand. This is when we see some goods skyrocket while others experience little change or even negative change. This is also why fuel and food prices - among the most volatile - are excluded from official estimates of inflation.

Yet arguments in the media and on these boards rarely fail to point a finger at Bernanke's loose monetary policy as being to blame for the rise in food and energy prices.

Supporters of Lyndon LaRouche and Ron Paul dismiss the possibility of market forces altogether by stating that "real inflation" is much higher than official estimates.

Is this a lack of education, or a by-product of populism?

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  1. Yes, price increases also reflect supply/demand changes in goods.  Today oil supplies are rather static because of OPEC policies and US government restrictions against development of our possible sources, while demand is increasing.  Since the cost of oil is affects shipping, transportation, utilities, virtually everything, we have increasing prices across the board,  However, most of those price increases, by far, are due to inflation, caused by the Fed increasing the money supply.  

    The supply/demand for food is also changing and raising prices.  Again, the largest portion of those price increases results from increasing the money supply, aka drop in the real value of the dollar.

      

    Lyndon LaRouche impresses me not at all so I have not idea what he thinks, or even if he does think.  However, Ron Paul is correct in that statement about "real inflation", which statement says nothing suggesting dismissal of market forces as having influence.

    I have numerous posts here on Y!A and on my quoted source about the Fed's manipulation of the money supply being the major cause of inflation and the inflation/recession cycle.  Bernanke is merely a member of the Fed board who happens to be chairman and spokesman at the present time.  I'm sorry if failure to point at him seems that we're ignoring the stupidity and immorality of the Fed.

    Education?  Certainly there is much misunderstanding of the Fed, even tho it's really very simple, and our politicians should have long ago terminated the Fed's right to manipulate the money supply.   Is that really an educational problem, or is it that Americans have become so brainwashed since the FDR that they just resign themselves to allowing government to do their thinking for them?

    About populism?  Sorry.


  2. one problem is most people misunderstand inflation. this is fueled by how inflation is measured. Inflation is really an increase in all prices (this includes all wages). The CPI and other measurement tools use are estimates that proxy inflation. The real problem is not inflation but the price increases that are real. The price increases are not currently across the board, they are target specific, mainly those that have oil as an input or have high a transportation element. this is more of a Supply and Demand issue as is food price increases and less due to monetary policy.

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