Understanding Inflation


We have defined inflation in our Glossary as:

Inflation  – Normally defined as the rate of percentage increase on an annual basis within the general price level.  Most often calculated from the rate of change in the CPI index. This is further defined by government as the rise in the price of goods and services. However, it is the inverse of the decline in the purchasing power of the currency. When inflation is across the board, then its root cause in normally government caused by the decline in the purchasing power of the currency. When it begins in a single sector due to a crop failure or things such as the oil price shock of OPEC that was instigated by the abandonment of the gold standard on August 15th, 1971, then it spreads from that epic center into other areas directly affected by that sector.


Asset-Class-Shift Deflation takes place when one earns say $1,000 and that remains unchanged, however taxes rise diminishing the available funds for discretionary spending producing a decline in economic activity that is deflationary based on the reduction in disposable income. The higher taxes move, rents, healthcare, or other non-discretionary spending, the lower the economic growth in proportion to the decline of discretionary spending.

Dah? Obama and the Democrats better learn this lesson.


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