Stimulating aggregate demand past output with monetary policy is one way inflation can happen, and central banks do have control over that. That can be considered a stealth tax by central banks.
But sometimes output actually does decrease and that isn't due to central banks.
The price of gas in Europe, for example, increased because there was a cold winter, a lack of wind, a recent issue with the supply due to Russia's attack on Ukraine. Not all increases in demand are due to central banks, and not all inflation is due to changes in demand.
The definition of what is inflation depends on the economic school of thought. In the case of the Austrian and Chicago economic school of thought inflation is the increase of money supply caused by the central bank that allegedly results in systematic and non temporary increase of CPI consumer price index and money loss of value. There are school of economics, such as Keynesian that argues that a limited and controlled inflation is a good thing for increasing market liquidity, avoiding deflation and promoting a full employment policy. On the other hand some economists believe that some inflation is also good for weakening the currency, boosting the exports and reducing the imports. Inflation becomes problematic when it is used for financing uncontrolled government spending like in Argentina, Turkey and Lebanon as making money out of thin air is the easiest way to a government to raise money since raising taxes can result in massive opposition; taking loans denominated in foreign currency may requires good credit rating and reasonable credibility; austerity measures, such as cutting government spending, unreasonable subsidies or unreasonable government employees wages may also result in political clashes.
The raise of money supply is not be the only cause of CPI and raise of cost of living as supply and demand problems around the world may also increase the CPI. For instance, we also should remember that we have faced several unexpected black swans, such as the pandemic; supply chain shutdown around the world, specially in Asia, that the West has become too dependent on; massive flooding in China what prompted the country to hoard grains; massive droughts in USA (California) and south of Brazil, both countries accounts for great deal of the world's food production; and finally the current war in Europe reduced the amount of natural gas, crude oil supply, fertilizers and wheat in the global market. Both countries involved in the current war accounts for about 1/3 of the world wheat production. Too much foreign dependency can also affect the CPI, since any currency devaluation against the dollar increases the price of everything if the country does not produces enough food to cover its needs like Lebanon.
People living paycheck-to-paycheck get larger paychecks out of an actual wage-price spiral so they're ultimately no worse off or better off. It is almost right there in the name.
What doesn't work for them is when there's massive asset bubbles like we've had for 30 years, but their wages are held flat.
1) Excessive lending and consequent increases in the money supply by commercial banks.
2) Governments printing money without any regulatory compensation to prevent 1
3) Shortages in goods and supplied measured by the CPI, such as food.
Right now we have 2 and 3, and some countries will probably have 1 as well..
> The debasing of fiat currency is a "stealth" redistribution of wealth, regardless of the pretenses for it.
The "debasing of fiat currency" reduces debt burdens, and I would think that middle- and low-income folks are probably more likely to have debt (student loans, mortgages). A low-inflation or even deflationary environment is probably a worse thing for the non-rich.
> If wages increase with inflation, and if the borrower already owed money before the inflation occurred, the inflation benefits the borrower. This is because the borrower still owes the same amount of money, but now they more money in their paycheck to pay off the debt. This results in less interest for the lender if the borrower uses the extra money to pay off their debt early.
Quite a lot of consumer debt is variable rate (credit cards, ARMs, ...), or nominally fixed rate, but rolls over somewhat frequently (car loans, mortgages as people move or refinance, pay later spending, etc).
By that definition, every price change is a redistribution of wealth (which is technically true).
The question is whether it's intentional, and it's impossible to imagine the people in charge of every world government would be enraging their citizens by creating inflation.
Simpler: people saved money during the pandemic at the same time as supply chains were disrupted, leading to high prices.
Every government in the world has the same problem.
From whoever is furthest to money creation to whoever is closest.
Ever wonder why record stock buybacks and record ceo pay are happening right when QE is happening?
Why stock markets and PE ratios are at record highs? Why there are record amounts being invested by VCs? Why commodity prices have been rising?
It’s not because of evil capitalism. It’s because those people are closest to where money creation happens. The 1% aren’t getting richer because of the exploitative nature of capitalism, but because they have access to new money.
That's precisely it. Inflation distributes wealth from those who have cash-backed savings, earn fixed wages, or have property leased under fixed rents, to the privileged who gain earliest access to the newly produced money.
When the stock of money is increased, it gets to be spent at face value that the money has at that time by those who are first to receive it. As the new money works its way through the economy, prices rise in response to the increased availability of this 'easy money'. The end result is that the people who are last to receive the new money get to spend it after the price of everything has already increased. If they already had savings prior to the increase in the supply, their savings now buy less than they would have prior to the supply increase. Since in most cases, people laboured to obtain this money, their time of labour is effectively being pilfered by those who have the ability to produce new money.
It is known as the Cantillon Effect, after Richard Cantillon described it in his Essay on economic theory[1]. Although it was known long prior to Cantillon's explanation, his is the earliest work which explains the process by which this happens.
Where Cantillon says "Mr. Locke lays it down as a fundamental maxim that the quantity of goods in proportion to the quantity of money is a regulator of market prices," I believe he is referring to 'Further considerations concerning raising the value of money,' a letter by John Locke[2].
The core argument of a reactionary anti-inflation position always pretends that money doesn’t matter in real terms. “Your debt is worth less, but…”
So when a few years of 7% inflation doesn’t trigger hyperinflation, but does reduce the real value of my debt by 40%, that’s good for the debtor, bad for the creditor.
We’ve seen the results of decades of monetary policy that ignored factors like unemployment and soley focused on inflation. That is, a plutocracy where almost a third of GDP is medical care, transportation, and military spending. Time for something else.
Inflation makes saving money a losing proposition because it literally rots away in your bank account. How is some one supposed to save for college, a house or to start a business if they are constantly losing money?
Meanwhile rich people don't care because their immense wealth lets them ride out inflation easily. In fact, in some situations it may be to their advantage because the value of other assets they hold (real estate, metals, art, etc) often increase in value during inflation.
You save for things that are 5+ years away by investing at least a portion of it in equities. Investments for goals that are 20+ years away should be over 80% in equities, IMO.
Those who can afford to put 80% of their savings away for 20 years are those who are least vulnerable to the effects of inflation.
The people most affected are those who have most of their assets in cash or cash equivalents. The low and minimum wage earners who can't afford to invest in stocks. Those who are attempting to enter the property ladder who need to save a deposit for a mortgage and see that their savings are declining by 7.5%/year.
At an inflation rate of 7.8%, it takes only 9 years for the price of everything to double. That minimum wage earner now has had half of his hard work amount to nothing, but the house he wanted to buy is now twice as expensive.
In other words, the only remaining way to “save money” is to buy assets largely owned by the rich and further drive up the inflated values of those assets.
Said differently: investing in ways similar to how the rich invest seems like a generally sound strategy, all else being equal. (They don't keep much money in passbook savings accounts.)
Sure, but really the reason we should invest like the rich isn’t that it’s sound for rational economic reasons, but that the rich will use their influence on politics to ensure their investments do not decline as much as they would without interventions.
Equities are not largely owned by the rich. They are mostly owned by pension funds. The "rich" do not own majority of the assets (though, of course, they own very disproportionate amounts of them, relative to their numbers, as that's what the word "rich" means).
And then whenever any policy that would reduce the profits from stock trading is floated, it's shouted down on the basis that "it'll hurt your retirement". A very cunning trap.
Exactly. It’s how any corrupt system is maintained. A dictator puts some inner circle of favored people under him, and then a larger layer but still small as a percentage beneath that, and so on all the way down, so that every layer has an incentive to support him and suppress the layers beneath. Add to that disproportionate influence through control of the military, police, and or media and even a 1/5 or less population can suppress the rest. Obviously our economy isn’t run that way but the same principle applies. We align the incentives of each person to act or vote in ways that benefit the already rich.
