Inflation

With CPI statistics being reported today at 2.8%, I thought now might be a good time to talk about inflation statistics. At first you might think that inflation is the increase of the price you pay for common consumer items, things you might buy on a daily or yearly basis. The difference between cause and effect can be difficult to work out, when coming to a new subject. The consumer price index, as measured by the Bank of England is not “inflation”. It is only the effects of inflation.

So – as an example, and an unusual reference:

Futurama series 4 episode 11:

Zapp Brannigan leads a successful attack on Tarantulon VI, claiming a huge prize of silken artworks. Earth President Richard Nixon gives the riches away to the citizens of Earth in the form of a three hundred dollar tax rebate (in the form of the $300 “Tricky-Dick Fun Bill”). The Planet Express staff plots what they’re going to spend their money on. Leela plans to swim with a whale, while Fry decides to purchase (and drink) one hundred cups of coffee. Dr. Zoidberg sets off to live like a rich man. Scruffy the Janitor decides to get “one of them three-hundred-dollar haircuts”, as “this one’s lost its pizazz”. Zapp Brannigan calls up Leela, and invites the whole staff to the reception displaying the silk treasures.
(wikipedia)

When the tax rebate is distributed – you see a montage of people reacting to the news (as well as Nixon’s “voodoo” economists playing with their cauldron), most notably, a “99 cent store” becoming a “$299.99 store”. This is an example of the supply of money dramatically increasing in a short time – inflation.

As the CPI figure is generated from a basket of prices, it is liable to be affected by the costs to produce this basket. As costs for the production of items such as TVs go down due to improved manufacturing techniques, and economies of scale – the effects of inflation on these items is reduced. Although the CPI may not have reported a large change (although if you look at the former inflation measure the Retail Price index, inflation has increased significantly), inflation due to extra money supply seems to have sunk into property prices, resulting in increased to formerly unseen levels. This sector of the economy benefits directly from the ability to borrow money cheaply, with the vast majority of homeowners taking a mortgage to finance their purchase.

Is it possible that when this easy money runs out, the $299.99 store turns back into a 99 cent store?

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