Why do we have inflation?

wez130

wez130

wez130

Soldato
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Stupid question probably, and i'm sure there are reasons..... (I'll probably re-word this tomorrow but needed to post it so I didn't forget!), and i've had a few beers, but, what is the point in inflation?
The only thing I can tell is that it's making the gap between the rich and the poor bigger. I mean think about it, It's a vicious circle, and even more so for the poor.

Literally the only ones to benefit from inflation is the government surely?, same as minimum wage increases, nobody benefits from them but the government in extra tax revenue. wages go up, businesses increase prices to cover increased wages, minimum wage earners are no better off, middle class people are worse off, rich people may be mildly inconvenienced, government are rubbing their hands together. Outcome, poor are still poor, business owners have a little more income, but a little more outgoings etc, so they don't really lose out in the long run when people forget about price increases. Same kind of thing with inflation, businesses adjust their prices to account for it, the poor can afford it even less, the middle and high class can afford it, though maybe inconvenienced slightly.

I guess my question is, what would happen if we just kept prices (and wages) the same forever, all over the world, I mean, your £100k in the 90's doesn't get you any more than maybe £250k does now, it's just made the gap between the rich and poor a lot higher!

(I'm sure you know what i'm trying to say, sorry!)
 
So a loaf of bread should cost the same regardless of which flour is used to make it, regardless of how long it took to make, regardless of the effort required to make and transport it? All over the world?

The change in the price of bread isn’t what’s stopping people from becoming richer financially - I know that’s not what you explicitly started but it’s what is implied.
 
sigma said:
So a loaf of bread should cost the same regardless of which flour is used to make it, regardless of how long it took to make, regardless of the effort required to make and transport it? All over the world?

The change in the price of bread isn’t what’s stopping people from becoming richer financially - I know that’s not what you explicitly started but it’s what is implied.
Click to expand...

If the process and costs don't change from the initial recipe, why should the cost increase?
 
sigma said:
So a loaf of bread should cost the same regardless of which flour is used to make it, regardless of how long it took to make, regardless of the effort required to make and transport it? All over the world?

The change in the price of bread isn’t what’s stopping people from becoming richer financially - I know that’s not what you explicitly started but it’s what is implied.
Click to expand...

What's any of that got to do with inflation?
 
I've just watched this (ultra basic) video trying to explain inflation.


And I get inflation, I really do, material costs rise, therefore costs have to rise to compensate, but the only reason I can see that prices rise is because of demand, so basically, it all comes down to greed. But ultimately, greedy person gets greedy, buyer has to increase prices to compensate, greedy person therefore has to pay more for products, rendering the whole process redundant, but making things more expensive for those unfortunate to be poorer.

I mean, think about it, houses, person buys a house in the 90's for £100k, 15 years later it's worth £250k, wow, what a profit, £150k right? Well, not really, if they sell it for £250k, they still have to pay for a new house at the same rate of inflation, so that £250k will get them no more house than that £100k did in the 90's, so, what's the point? All it's done is made prices even more out of reach for more people.
 
sigma said:
So a loaf of bread should cost the same regardless of which flour is used to make it, regardless of how long it took to make, regardless of the effort required to make and transport it? All over the world?

The change in the price of bread isn’t what’s stopping people from becoming richer financially - I know that’s not what you explicitly started but it’s what is implied.
Click to expand...

He didn't say that at all. Of course an artisanal loaf of bread, using 'higher' quality flour hand made by Pierre with onions round his neck should cost more than a loaf of Tesco Basic with the cheapest of ingredients from a bread making machine. However, the OP is asking why should either loaf of bread be more expensive in 2 years time than they are today, or why they should be more expensive now than they were two years ago.

I'm somewhat with the OP. Inflation should give zero winners or losers really. Inflation happens, prices rice, wages rise. No one really wins, and no one really loses out. When inflation happens unexpectedly however then there can be a detriment to society, businesses and the workers but also winners. This is why all the central banks try and limit the rise of inflation to a level which should mean everyone's wages and prices increase together.

There's probably also an egotistical element to it, we want to see that we have more pounds and pence in our pockets than we did 2 years ago so whilst our buying power may or may not increase our perceived income should which has to be good for the individual?
 
I think if you learned the fundamentals of economics inflation would make more sense, and that isn't a dig. The fact you think demand increasing is down to greed is really wrong, people simply being born increases demand for example, or a new product being invented creates demand where there was none previously; it's not down to greed because it can also be necessity. It's really all down to supply and demand though.
 
I thought the simplified basics of inflation was, government prints money, increase debt vs gdp, currency becomes worth less, so everything (mainly imports) costs more ?
 
Ahleckz said:
He didn't say that at all. Of course an artisanal loaf of bread, using 'higher' quality flour hand made by Pierre with onions round his neck should cost more than a loaf of Tesco Basic with the cheapest of ingredients from a bread making machine. However, the OP is asking why should either loaf of bread be more expensive in 2 years time than they are today, or why they should be more expensive now than they were two years ago.

I'm somewhat with the OP. Inflation should give zero winners or losers really. Inflation happens, prices rice, wages rise. No one really wins, and no one really loses out. When inflation happens unexpectedly however then there can be a detriment to society, businesses and the workers but also winners. This is why all the central banks try and limit the rise of inflation to a level which should mean everyone's wages and prices increase together.

There's probably also an egotistical element to it, we want to see that we have more pounds and pence in our pockets than we did 2 years ago so whilst our buying power may or may not increase our perceived income should which has to be good for the individual?
Click to expand...

I missed out the differing/increasing costs of raw materials. I wasn’t talking about price variation. I should have been clearer but in reality there are multiple factors impacting multiple types of inflation. Also pricing fixing wouldn’t work due to what I said either, even if it is a separate point, I mean how would you even enforce it?
 
Inflation occurs because the supply of money increases faster than the supply of goods available to spend it on.

It isn't a new thing tied to modern banking practices or state economic (mis)management either (Though today this has a lot to do with it)

When the Spanish first started to exploit the mineral wealth of the "New World" they brought back hundreds of tons of Gold and thousands of tons of Silver, and guess what, Spain experienced rampant price inflation.
 
sigma said:
Price fixing wouldn’t work, that’s my point. It’s sort of related to inflation no? I’m happy to be educated on it if you could explain where I’m wrong.
Click to expand...

Inflation is a measure of the price change of the same goods in one country. Not different varieties of goods all over the world.
 
Ahleckz said:
He didn't say that at all. Of course an artisanal loaf of bread, using 'higher' quality flour hand made by Pierre with onions round his neck should cost more than a loaf of Tesco Basic with the cheapest of ingredients from a bread making machine. However, the OP is asking why should either loaf of bread be more expensive in 2 years time than they are today, or why they should be more expensive now than they were two years ago.

I'm somewhat with the OP. Inflation should give zero winners or losers really. Inflation happens, prices rice, wages rise. No one really wins, and no one really loses out. When inflation happens unexpectedly however then there can be a detriment to society, businesses and the workers but also winners. This is why all the central banks try and limit the rise of inflation to a level which should mean everyone's wages and prices increase together.

There's probably also an egotistical element to it, we want to see that we have more pounds and pence in our pockets than we did 2 years ago so whilst our buying power may or may not increase our perceived income should which has to be good for the individual?
Click to expand...

There are plenty of losers.

Lots of employers give below inflation wage rises.

So if inflation is say 3% and my wage rise is 1.5% I'm effectively having my wages cut every year.

Inflation is a part of capitalism and printing money. If you stopped every country from printing money, inflation would either stop or be severely hampered. In fact prices might actually go down over time.
 
The more you need to produce something, the more needs to be invested in infrastructure, equipment and staffing to meet the demand. Price per unit may drop, but costs need to be recouped.

But yes, greed is the main reason. Companies are under constant pressure to increase earning for share holders. Once sales plateu, the only things left to do are cut costs, or increase prices.
 
You could pretty much stop inflation if necessary but inflation is very convenient for government borrowing (or anything other form of borrowing really). That £100 you borrowed over 10 years becomes cheaper and cheaper to pay off as your £100 gradually becomes worth 'less'.
 
It's about the money supply and expansion, they have to keep expanding the money supply or banks lose money.
It's basically a ponzi, which can go on forever with inflation. Without inflation it's stuffed.
 
Inflation is gold shaving.

100 gold coins in circulation.
banker shaves 1% off each coin and makes a coin with it.
101 gold coins in circulation.
but everyone knows their coins are worth 1% less than before.

100 pounds in circulation.
central bank prints 1 pound.
101 pounds in circulation.
but everyone knows their pounds are worth 1% less than before.

why do this?

because the government has borrowed too much.
the national debt of 2 trillion only matters if 2 trillion is a lot of money.
paying the national debt off would cost many thousands per person, we simply don't have it.
so we devalue the 2 trillion over time, it's taxation, but without the drama of increasing taxes.

who's lending the government all this money?

other governments, Rothschild types.
 
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