What is the true rate of inflation?

[summadayze]

There are lots of sources on the net that say the US inflation rate is actually 10% or more, and if you look at graphs of the M3 money supply it has skyrocketed ever since the dollar stopped being backed by gold.

Now seeing as it is a global economy and most of the money comes from the US, is it fair to believe that inflation for NZ (and other countries) is actually way higher? So if you left your money in the bank you would actually be losing money every year after inflation and tax lol makes property even more attractive, what do you think?

[Skeptic]

I think it depends on whether by inflation you mean price inflation (which is how it is measued in NZ for the Reserve Bank Act), or money inflation, which is the amount of supply of money circulating.

[summadayze]

I think it depends on whether by inflation you mean price inflation (which is how it is measued in NZ for the Reserve Bank Act), or money inflation, which is the amount of supply of money circulating.

I mean money inflation, and because there's more money after the same amount of goods that makes price inflation, is that right?

[Julian Grainger]

I don't think that is right.

Consumption is increasing, manufacturing has sky rocketed globally and our imports are up.

Since there is hardly any stock sitting around these days thanks to things like SAP there must be more goods to buy and being bought.

[cube]

More goods to buy and being bought, indeed. But with what?

We simply mint another 5000 $1 coins and say 'Hey, I'm $5,000 richer than I was before", and head off to buy a plasma TV.

Seems like a good idea, so we mint 5,000,000 $1 coins and distribute them to 1,000 people. They then go to buy a plasma TV, and find that, because there are only 2 left in the country and 1,000 people with $5,000 each want one, the price is now $2,500,000!

I think that's how inflation works!

cube

[Julian Grainger]

True but we don't live in Zimbabwe. We have genuine wealth production from resources like farming. That creates jobs where we can swap our time for money and right now we have very good employment rates so more people with money.

Yes we have more stuff on ticket but we also have more assets than we ever used to have as well. So the money multiplier theory probably has more weight at the moment than printing money.