What causes inflation?

Prices to rise, et cetera?

In recent years, the way in which inflation has been defined has been "result-oriented" (rather than causal) but that ignores alternative possible outcomes.

is mainly a product of supply vs demand. a 'loose' monetary policy can contribute to this. also fears and manipulations can cause prices to rise (see the current oil prices)

As prices rise, for whatever reason, the economy either pays everyone more, commensurate with the rise, or it doesn't. If it does, you have inflation. If it doesn't, you have real income shrink, and that is anti-inflationary, but it also costs jobs and revenues.

The Fed regulates inflation by increasing the base rate at which banks can loan money, and that regulates the money supply. When they increase the money supply, loans are easier to get, and the result is inflationary. When the Fed decreases the money supply, loans are harder to get, and that is anti-inflationary, but it may also chill the economy.

money chasing too few goods, which is the classic, simplistic explanation.

In the 1970s, we saw how a cartel controlling output and prices could also wreck an otherwise healthy economy with double digit inflation in an essential commodity. The tragedy is that the right blamed the inflation on greedy working people, and wages have never recovered in buying power to their pre-OPEC levels.

Oversupply of money into an economy will also cause inflation, and we're about to see that one in action. Stupid is basically printing money to cover his wars so he won't have to raise taxes on the holy rich.

So inflation is generally caused by an oversupply of money, an artificial or natural undersupply of goods, or a combination of the two.

A pity; executive class wages have gone up into the latter triple digits (~600x) over the last 25 years while the rest of us, inflation aside, got little. You'd think that'd be enough, but in comes offshoring and offpeopling (automation)...

That is inflationary, irrespective of monetary policy or interest rates. It is highly inflationary, because the cost of power is found in every product.

or is it just oversupply?

If the printing presses begin to double or triple the output of dollars it will be an easier way to pay down the debt the war in Iraq has cost the US citizens, by using cheaper dollars. Our US currency will fall against other world currencies.

Everyone no doubt has noticed how the necessities such as food has changed in the past year. My wife remarked that if cakes in the supermarket get any smaller they'll have to call them cup cakes.

I had an occasion to walk into a super market at 3:00 AM and was surprised to see nearly fifteen people pulling boxes of the shelves and replacing them with smaller boxes of the same product, however.
The smaller box price was not reduced proportionately. By reducing the space between the shelves they could put more boxes in the same space, and still make more profit per inch;that's inflation. And one example of how super markets are handling the problem.

The answer is to become smarter shoper. Purchus only needs not wants. There is no way to avoid,inflation but we can reduce its impact on our budget.

Tax rates and government spending (and borrowing) also influence inflation. Also, Nixon was the last president who tried to use wage and price controls to control inflation. FDR very effectively controlled inflation with price controls.

Reagan and Thatcher believed that interest rates were the only way to control inflation (and they made the tax codes so regressive that it was no longer an effective tool for dealing with infaltion) and that turned out to be the worst way to control inflation.

led to massive post-war inflation as well.

Price controls just don't work, they create shortages, and the market carves out loopholes everywhere.

FDR's wage and price controls were very effective. There was almost no inflation during WW2 and I can't remember whether it was very bad during the Truman years, but one thing is definitely true about the Truman years: the washington-west point axis of power increased the military dramatically. Thanks to the cold war, and the development of an airforce, denfense spending was out of a control -- and New Dealers were stunned by the profligacy. I don't think anyone believes that FDR would have done that.

Monetarists claim it is simply the fact that the money supply has grown too large. So, with a big pool of available money but a no bigger pool of goods and services you get inflation.

Other conservative economists claim it occurs when wage rates outstrip productivity gains (wage push inflation). That leads to higher costs of production which is then passed on to the workers who are getting the higher wages. Others also claim that when unemployment falls below a certain level, inflation is inevitable (Phillip's Curve) due to wage pressures.

Another common cause is the shortage of a key commodity. Say oil. Since there is no readily available substitute, prices must rise to balance supply and demand. The cost increase is felt across the economy.

One more cause is the loss of faith in the currency. This can happen for a number of reasons: war, tyranny, fiscal mismanagement, etc.

Its everywhere he'll tell ya!

have to wheelbarrow our promissory notes down to the store for a loaf of bread and five pounds of potatoes?

If I think about what things cost more than they did a year ago or two years ago (most goods and services that I can think of) and the things that cost less (electronics?) it is hard for me to believe that inflation is only 3% per year.

Food, clothes, gas, electricity, contractors, plumbers, gardeners, housing, movies, car repair, veterinary bills, plastics, etc....all these costs seem to be a lot more than 6% higher than a couple of years ago.

It's true that the cost of a 4 MP camera might be half of what it was two years ago, but we simply just buy a better camera for the same price. Same with computers. For the things that are cheaper this year, we seem to spend the same amount...but while purchasing a better product.

So...do we suspect inflation figures are misleading for political reasons? For fiscal reasons (low inflation rate triggers lower payouts for benefits and entitlements)?

consumer of raw materials and goods that they increase demand and reduce supply, forcing everyone to pay more.

:shrug: