4 ms·

Output prices rise, aka inflation happens, when input costs rise. Input costs can either rise due to market forces or regulation.

conanbatt 7y ago
Changes in relative pricing are not inflation. Inflation is the generalized increase in nominal prices: doubling minimum wage, if it affects prices, will not increase the cost of a lambo or a yatch, etc. The inflation model that is all about costs is old and not correct. The government institution in charge of controlling inflation is the Fed, through monetary policy. Sidenote: getting a bit tired at the insta-downvotes on any straight-forward opinion.
- deleted 7y ago
  [deleted]
- Anon1096 7y ago
  >The inflation model that is all about costs is old and not correct. I mean, okay if you believe this, but you should know that it isn't popular. The way we measure inflation is the CPI and common consumer products. Lambos and yachts can be stagnant while inflation is still occurring.
- formercoder 7y ago
  I thought we measured inflation with something like the CPI-W, which tracks the prices of a basket of goods. Am I missing something?
  - conanbatt 7y ago
    The purpose of measuring prices of a basket of goods as opposed to a BigMac Index is to diversify the subjects to measure inflation. Inflation is the generalized increase in prices which means that supply/demand shocks that change the prices of some goods but not others are not inflation by definition. Goods change prices all the time relatively (a new technology makes something cheaper, a climate disaster makes a produce more expensive, etc). Changes in MW are not going to impact all goods: for starters it will not impact goods you import. It is a bad habit of news to call inflation to a subset of goods (asset inflation, healthcare inflation, etc) but that is just plain incorrect in terms of economic terminology. The Fed is not concerned for healthcare costs rising, they are concerned for inflation which is when everything rises because the money supply outpaces economic output growth. Going deeper: before the Milton friedman era, the Keynesian era had the argument that inflation was a problem of the cost of production of goods. So if you could stop that from happening you could stop inflation, resulting in price control policies, collective union bargaining for fixed prices, etc. It was considered and thought that fiscal policy and regulation could stop inflation and even Nixon got into that. Milton Friedman ushered the new era with the phrase from another comment: Inflation is always and everywhere a monetary phenomenon. Countries today that use the old model, that price controls could fix inflation, include Venezuela and Argentina, that have the worst inflations in the world. Argentina has taken this concept that inflation is on the measuring of the basket of goods that they manipulate the statistic two ways: first, the agree to price controls and make sure the controler products are in the basket of goods, to claim lower inflation than real. Second, to actually fudge the numbers of inflation as measured. Naturally, neither strategy works, because as long as you have a monetary imbalance, you have inflation. Hopefully you are at least amused by my expose!

conanbatt 7y ago

Changes in relative pricing are not inflation. Inflation is the generalized increase in nominal prices: doubling minimum wage, if it affects prices, will not increase the cost of a lambo or a yatch, etc. The inflation model that is all about costs is old and not correct. The government institution in charge of controlling inflation is the Fed, through monetary policy. Sidenote: getting a bit tired at the insta-downvotes on any straight-forward opinion.

deleted 7y ago
[deleted]
Anon1096 7y ago
>The inflation model that is all about costs is old and not correct. I mean, okay if you believe this, but you should know that it isn't popular. The way we measure inflation is the CPI and common consumer products. Lambos and yachts can be stagnant while inflation is still occurring.
formercoder 7y ago
I thought we measured inflation with something like the CPI-W, which tracks the prices of a basket of goods. Am I missing something?
- conanbatt 7y ago
  The purpose of measuring prices of a basket of goods as opposed to a BigMac Index is to diversify the subjects to measure inflation. Inflation is the generalized increase in prices which means that supply/demand shocks that change the prices of some goods but not others are not inflation by definition. Goods change prices all the time relatively (a new technology makes something cheaper, a climate disaster makes a produce more expensive, etc). Changes in MW are not going to impact all goods: for starters it will not impact goods you import. It is a bad habit of news to call inflation to a subset of goods (asset inflation, healthcare inflation, etc) but that is just plain incorrect in terms of economic terminology. The Fed is not concerned for healthcare costs rising, they are concerned for inflation which is when everything rises because the money supply outpaces economic output growth. Going deeper: before the Milton friedman era, the Keynesian era had the argument that inflation was a problem of the cost of production of goods. So if you could stop that from happening you could stop inflation, resulting in price control policies, collective union bargaining for fixed prices, etc. It was considered and thought that fiscal policy and regulation could stop inflation and even Nixon got into that. Milton Friedman ushered the new era with the phrase from another comment: Inflation is always and everywhere a monetary phenomenon. Countries today that use the old model, that price controls could fix inflation, include Venezuela and Argentina, that have the worst inflations in the world. Argentina has taken this concept that inflation is on the measuring of the basket of goods that they manipulate the statistic two ways: first, the agree to price controls and make sure the controler products are in the basket of goods, to claim lower inflation than real. Second, to actually fudge the numbers of inflation as measured. Naturally, neither strategy works, because as long as you have a monetary imbalance, you have inflation. Hopefully you are at least amused by my expose!