Any economists out there know about inflation?

Simon

Ok, I'm getting a bit fed up with what I think are bogus economic 'facts' being constantly foistered on us. Of course I could just be wrong and misunderstand !

The issue is this:

In the UK both house-prices and petrol-prices are at record highs ... or so we think.

We are told that after adjusting for inflation that they are not really any dearer and may actually be cheaper.

Now, I can't remember being so concerned about the price filling up my car years ago and I can't recall people complaining that they just can't afford to live in the towns they were bord because the houses are so expensive.

So what's going on? Here's what I think (see if this makes sense) ...

When they adjust for inflation, they take into account some of the biggest factors that make up inflation in the first place - house prices and fuel !

To simplyfy it, imagine you have just 1 item. The cost goes up 10% and therefore generates 10% inflation. The price adjusted for inflation is then as it was and hasn't gone up. In fact, it could go up 100% or 1,000% and the price 'inflation wise' wouldn't budge!

What am I missing?

Undaunted Danny

What causes monetary Inflation ? Danny's quickie answer [non-PHD version] Ans;excess debt.If i owe $1,000.00 a month in debt,and I only have $800.00 month to pay.What will happen to my budget?Ans;I will go bankrupt. The same goes for everybody else.EXCEPT "sovereign" governments.They do something that I would go to jail for.They print more money,if I did that I would be a counterfeiter. Legalized counterfeiting CAUSES runaway inflation because the money becomes devalued and worth-less so real goods and products of commerce now need more of the 'funny money' to equalize. Dollar Dollar Dollar Funky The solution is for the governments to become solvent and balance the budget.

stillajwexelder

Nothing Simon - that is why it is called Rip-off Britain -- when a f-----g small Coke costs me about (well over 1 GBP) or over 2.00 US dollars or more in a pub/bar and then I have to pay that again if I want another - it makes me mad -- next you will tell me they are trying to encourage people to drink soft drinks instead of alcohol - so yes and then you can talk about inflation -- in my local McDonalds I am just given an empty cup and can go to the soda machine as many times as I want - and I get ICE too!!!!!!

JeffT

What are you missing?

Any one of the following: a PhD in economics, psychic knowledge of how to read tea leaves, or the ability to shovel smoke (they're all interchangable). The so-called "adjustment for inflation" trys to take into account the fact that most people make more money than they used to. For example I got my first job in the mid-sixties I was paid minimum wage $1.40 an hour and gas cost 32 cents a gallon. So an hour of work bought 4.3 gallons of gas. Now minimum wage (where I live) is $7.01 and gas is about 2.50 so an hour of work buys 2.8 gallons of gas. So gas has gone up about 800 % but adjusted for inflation it is only about 175% (or something like that).

The problem with economic statistics is that don't mean anything in the real world. The consumer price index (the government measure of inflation) here in the US doesn't take into account the fact that the computer I'm using to write this didn't exist when I got my first job. A computer then was a room full of electronics that cost $10 million or so. This is just one example.

As an old joke goes: if you laid all the economists in the world end to end they still wouldn't reach a conclusion.

Realist

hello simon,

the overall inflation is determined by the price increase of a large variety of goods.

one can also look at the individual type of items.

a quick summary is here: http://en.wikipedia.org/wiki/Inflation

in germany the increase in gas prizes made the largest contribution to the about 1.5% inflation rate of the last couple of years.