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Comment by skybrian | Hacker News Reader

Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly.

Inflation is about the prices people actually pay, on average. Your neighbor's house getting sold for a lot of money isn't a real cost to you like rent. Someone paid that price, but they are not necessarily typical.

Inflation does include rent (or "imputed rent") to the extent that people actually pay those prices on average. Some people really do pay higher rents, but many others have lower housing costs locked in via home ownership or rent control, and they count too, so this is going to drag down the average. That's just the nature of averages.

BTW, stock market indexes are an average too, and it's heavily weighted towards tech firms due to market capitalization. Only about half of the stocks in the S&P 500 are up for the year.

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This is the new definition, in old dictionaries inflation was defined as increase in money supply.

Using products to measure inflation, is a terrible mistake in my estimation, because cost has been falling, so stable prices don't mean no inflation.

It just means the governments got wise to just take what they can get without being noticed.

.. how old a dictionary are we talking here? It's not a recent change.

Probably 100 years old, I don't remember exactly, but it is not recent at all.

You can't define inflation as you want. Inflation is an government official indicator with a very clear meaning.

do you always trust the government's definitions of things?

Suppose the government defined "eastern time zone" to be a geographical area. And you live in western indiana, and commute to work in chicago.

Suppose the government defined "torture" to not include "waterboarding".

That's not my point. My point is that if we don't agree in a definition of inflation, how can we have a rational discussion? And there is a clear textbook definition of inflation.

Right but that definition has drifted. That's not necessarily a problem in and of itself but in the process of drifting in this case it has obscured the original definition, which now is orphaned without a label. The problem therein is that it's left the discourse; since the subject of the old definition is more likely to precede and be a cause of the subject of the new definition, it seriously muddies the discourse and arguably the modes of thinking about the solution.

I didn't define as I want to, I pointed to the fact that the meaning in old dictionaries used to be increase in money supply.

My point doesn't depend on this tho, measuring inflation by rising prices isn't ideal, because you will be measuring multiple things at once, and only the people lose in that case.

Prices can rise and fall for multiple reasons, and knowing why helps to fix it.

If the price goes up because of a shortage, the increase in price helps stimulate more production.

Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers.

>>"Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers. "

Governments have the fiscal capacity to keep the economy going. Is your theory that, for instance, the USA economy would be better without the government stimulus?

When the economy goes bananas, if it's not sustained by the government, not only will be suffering of a big part of the population but the destruction of physical capacity and knowledge in the economy.

This is not the 19th century, that idea that the economy on its own works perfectly should be debunked by now.

> I pointed to the fact that the meaning in old dictionaries used to be increase in money supply.

Monetary inflation is one thing denoted by the word "inflation", and perhaps it used to be the more common use in general conversation. Its not anymore, price inflation, particularly consumer price inflation is the most common general use.

> measuring inflation by rising prices isn't ideal

It certainly is if you are doing for a purpose to which price levels are most directly relevant, which is quite commonly the case. There's nothing mystical about the word "inflation" that creates an all-purpose best measure (and, in fact, "inflation" is a name for lots of different things, which have complex interrelationships.)

> You can't define inflation as you want.

You can; whether that's useful or not depends on the definition and context of use.

> Inflation is an government official indicator with a very clear meaning.

No, its not. Inflation is a broad concept (well, actually, a set of different and interrelated broad concepts) with a number of different official government measures. The most common US government measure of price inflation, the most common kind people talk about, is the all items CPI-U (Consumer Price Index for All Urban Consumers.) But there are lots of other inflation measures, including official government ones used for important purposes, like the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) which is used as the basis for Social Security COLAs. And also frequently cited is the CPI-U for all items excluding food and energy. There are also CPIs for other populations, CPIs for other categories of goods and services, PPIs (Producer Price Indexes), ECI (Employment Cost Index), and others. All of these are official government price inflation measures.

There are also official government measures of money supply, which equivalently are measures of monetary inflation. And there are a whole bunch of those, not just one.

It was once thought that the money supply was directly related to inflation, but they were never the same thing. The classic equation was MV = PY, and M (the money supply) and P (the price level) are different. They are only proportional (according to this equation) if everything else remains the same.

In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we care about it? Because it might have a real-world effect on us via price changes.

Gathering data about prices directly is a better way of understanding price levels (and inflation) than mucking around with less measurable quantities.

To the extent that the money supply matters, it's because it might result in higher prices in the future. But this doesn't seem to happen in any mechanical way. Just because people have money doesn't mean they want to spend it. In the classic equation, V (the velocity of money) can slow down.

This is particularly true when we are talking about institutions and rich people who already have savings. Higher numbers in their bank accounts doesn't automatically result in more spending, either by them, by the banks, or by companies whose stock prices get bid up.

It would matter more if the money went to people who actually need to spend it.

I think we agree on the point, but disagree in the definitions.

Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties.

My point is more on the government saying it needs inflation, when even without price increases inflation might be happening.

We have increasing productivity, cost has been falling, so if prices stay fixed, therefore no price inflation, the people are still paying more than they should.

The value of things have been falling, but prices haven't.

When the Federal Reserve said that a little more inflation is acceptable, they were talking about the Consumer Price Index.

It’s not that price increases are good in themselves, but that it would be good if people spent more, and if it results in prices being a little higher, this is okay.

People being priced out of productive investments has consequences too. Those are not the same "the sky is falling, everybody is poor now!" consequences of consumer products inflation¹, but they exist and are important for a healthy society.

1 - What an incredible new definition of monetary inflation we have now, that can be split over real markets without any loss of meaning.

> Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly.

They fail to make a distinction between monetary inflation and price inflation which is the reason for the (intended) confusion around the term 'inflation'.

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