Inflation is a stealth tax, imposed via central banks.
But sometimes output actually does decrease and that isn't due to central banks.
The price of gas in Europe, for example, increased because there was a cold winter, a lack of wind, a recent issue with the supply due to Russia's attack on Ukraine. Not all increases in demand are due to central banks, and not all inflation is due to changes in demand.
The raise of money supply is not be the only cause of CPI and raise of cost of living as supply and demand problems around the world may also increase the CPI. For instance, we also should remember that we have faced several unexpected black swans, such as the pandemic; supply chain shutdown around the world, specially in Asia, that the West has become too dependent on; massive flooding in China what prompted the country to hoard grains; massive droughts in USA (California) and south of Brazil, both countries accounts for great deal of the world's food production; and finally the current war in Europe reduced the amount of natural gas, crude oil supply, fertilizers and wheat in the global market. Both countries involved in the current war accounts for about 1/3 of the world wheat production. Too much foreign dependency can also affect the CPI, since any currency devaluation against the dollar increases the price of everything if the country does not produces enough food to cover its needs like Lebanon.
What doesn't work for them is when there's massive asset bubbles like we've had for 30 years, but their wages are held flat.
1) Excessive lending and consequent increases in the money supply by commercial banks. 2) Governments printing money without any regulatory compensation to prevent 1 3) Shortages in goods and supplied measured by the CPI, such as food.
Right now we have 2 and 3, and some countries will probably have 1 as well..
The question is whether it's intentional, and it's impossible to imagine the people in charge of every world government would be enraging their citizens by creating inflation.
Simpler: people saved money during the pandemic at the same time as supply chains were disrupted, leading to high prices.
Every government in the world has the same problem.
Meanwhile rich people don't care because their immense wealth lets them ride out inflation easily. In fact, in some situations it may be to their advantage because the value of other assets they hold (real estate, metals, art, etc) often increase in value during inflation.
"The wealthiest 10% of Americans own a record 89% of all U.S. stocks"
https://www.cnbc.com/2021/10/18/the-wealthiest-10percent-of-...
Somewhere I read that the top 1% owns about 50% of stocks.
The people most affected are those who have most of their assets in cash or cash equivalents. The low and minimum wage earners who can't afford to invest in stocks. Those who are attempting to enter the property ladder who need to save a deposit for a mortgage and see that their savings are declining by 7.5%/year.
At an inflation rate of 7.8%, it takes only 9 years for the price of everything to double. That minimum wage earner now has had half of his hard work amount to nothing, but the house he wanted to buy is now twice as expensive.
When the stock of money is increased, it gets to be spent at face value that the money has at that time by those who are first to receive it. As the new money works its way through the economy, prices rise in response to the increased availability of this 'easy money'. The end result is that the people who are last to receive the new money get to spend it after the price of everything has already increased. If they already had savings prior to the increase in the supply, their savings now buy less than they would have prior to the supply increase. Since in most cases, people laboured to obtain this money, their time of labour is effectively being pilfered by those who have the ability to produce new money.
It is known as the Cantillon Effect, after Richard Cantillon described it in his Essay on economic theory[1]. Although it was known long prior to Cantillon's explanation, his is the earliest work which explains the process by which this happens.
Where Cantillon says "Mr. Locke lays it down as a fundamental maxim that the quantity of goods in proportion to the quantity of money is a regulator of market prices," I believe he is referring to 'Further considerations concerning raising the value of money,' a letter by John Locke[2].
[1]:https://mises.org/library/essay-economic-theory-0 [Part 2, Chapter 6].
The core argument of a reactionary anti-inflation position always pretends that money doesn’t matter in real terms. “Your debt is worth less, but…”
So when a few years of 7% inflation doesn’t trigger hyperinflation, but does reduce the real value of my debt by 40%, that’s good for the debtor, bad for the creditor.
We’ve seen the results of decades of monetary policy that ignored factors like unemployment and soley focused on inflation. That is, a plutocracy where almost a third of GDP is medical care, transportation, and military spending. Time for something else.
Treasuries, the lowest-risk dollar investment, are the first to lose value with inflation. And everyone has access to Series I bonds.
Ever wonder why record stock buybacks and record ceo pay are happening right when QE is happening?
Why stock markets and PE ratios are at record highs? Why there are record amounts being invested by VCs? Why commodity prices have been rising?
It’s not because of evil capitalism. It’s because those people are closest to where money creation happens. The 1% aren’t getting richer because of the exploitative nature of capitalism, but because they have access to new money.
Precisely! You might also want to mention that there's a name for that, the Cantillon Effect.
[Ed. Fixed spelling according to sparkie's correction.]
The "debasing of fiat currency" reduces debt burdens, and I would think that middle- and low-income folks are probably more likely to have debt (student loans, mortgages). A low-inflation or even deflationary environment is probably a worse thing for the non-rich.
Not really, because inflation causes interest rates to go up correspondingly.
Lenders are not fools when it comes to inflation.
Source? For student loans at least, the amount of debt held is positively correlated with household income, not negatively like you suggest. https://www.urban.org/sites/default/files/styles/optimized_d...
> If wages increase with inflation, and if the borrower already owed money before the inflation occurred, the inflation benefits the borrower. This is because the borrower still owes the same amount of money, but now they more money in their paycheck to pay off the debt. This results in less interest for the lender if the borrower uses the extra money to pay off their debt early.
* https://www.investopedia.com/ask/answers/111414/does-inflati...
(The article mentions some benefits to lenders too.)