Inflation has at least 8 distinctly different definitions that I can readily find, and probably a whole lot more that I have not yet found.
Commonly Used Definitions
1. Decline in purchasing power of the currency held
2. Rising prices in general (essentially the same as #1 although some might disagree)
3. Rising consumer prices (CPI)
4. Rising producer prices (PPI)
5. Rising prices due to expansion of money supply
6. Rising prices due to expansion of money supply and credit
7. Expansion of money supply
8. Expansion of money supply and credit
Four of those definitions refer to money supply. That brings up another issue. When one refers to "money supply" are they talking about M1, M2, MZM, Money AMS (Austrian Money Supply), or simply the amount of money they have in their bank account or wallet at the time of the conversation? Definitions 5 and 6 refer to "rising prices" yet fail to distinguish between consumer prices, producer prices, or simply prices in general. It seems we could easily add a lot more definitions.
Furthermore, some people make no distinction between money and credit but others do as noted by choices 5 thru 8. Still others insist than in the fiat world we are in, the web is so tangled between money and credit that this mess is not even worth bothering to figure out. Those folks simply hold gold and wait for "The Crash".
The thing is, it is simply impossible to argue about inflation (or anything else) unless one can agree on a definition. Like it or not, we live in a fiat world. Therefore we must attempt to have sound definitions that best describe the fiat world we are in.
Is Price all that Matters?
Of course those in the "price is all that matters" camp have no such problems. To them, prices of a basket of goods and services rose, therefore inflation rose. A big problem for those in this camp is that rising asset prices (such as stock market equities) are not properly accounted for in any known basket of goods and services.
Some might argue that that problem can be solved by including stock market prices in the basket of goods and services. Unfortunately that further compounds the problem by orders of magnitude. How does one decide which stocks to include in the basket as well as the relative weighting of those stocks? Furthermore, is it really valid to call genuine improvements in business conditions "inflation"?
Even without the problem of equity assets, there is a huge problem of selecting a basket of goods and services that works for both consumers and producers. Not only is it impossible to accurately pick a representative basket of goods an services that properly measures "purchasing power", it is also impossible to make accurate quality judgments about the prices of goods in that basket.
For example: double pane insulated argon gas filled windows are now common. How does one measure the price of those windows with windows thirty years ago when such a thing did not even exist? How does one accurately measure the relative values of such windows vs. the windows of yesteryear? It simply can not be done! Practically speaking, the price drop is 100% because one could not get those windows at any price if you go back far enough.
Tags:
CPI,
currency held,
Forex,
gold,
Heck,
market,
Money,
money supply,
PPI,
Rising prices,
stocks
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