What is inflation for us?

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What you should now about inflation

Ladies and gentlemen

Welcome to the Sunflower Foundation!

In this video we look at inflation.

• The word “inflation” derives from the Latin inflare, meaning to swell or expand. Today inflation commonly refers to the continuous rise in consumer prices. For example, if the prices of food, clothing and hotel overnights increase over time, we call that inflation. Over time, as prices rise for consumer goods and services, we steadily get less in return for our money. Inflation erodes the purchasing power of money.
• But merely defining inflation by rising consumer prices doesn’t tell the whole story. Consumer price indexes don’t consider all the prices that are important to people. Other kinds of prices – for example, for property, buildings, stock and bonds – are not considered in consumer price calculations. And people don’t only want basic consumer goods; they also want to invest in shares and property. In recent years, inflation has diminished for cost-of-living expenses in many countries while at the same time prices for many kinds of assets have risen sharply. In other words, asset price inflation has been significant. As a result, the erosion of the value of money has been much greater than suggested by official cost-of-living increases. 
• People holding cash have actually grown steadily poorer, and their losses are at rates higher than the official statistics would indicate, since they only track prices for general consumer goods. Inflation not only hurts cash holders; it also has costs for the broader economy. If inflation comes as a surprise, and thus not properly planned for, it can force a dramatic redistribution of income and wealth. Savers and lenders lose while borrowers win.

Details on Thorsten Polleit

Thorsten Polleit is Chief Economist of Degussa Goldhandel GmbH (www.degussa-goldhandel.de).

Thorsten holds a diploma in economics and was awarded a doctorate in economics from the University of Münster in 1996. In September 2014 he was appointed Honorary Professor for economics at the University of Bayreuth (www.uni-bayreuth.de).

Thorsten Polleit is an Adjunct Scholar of the Ludwig von Mises Institute, Auburn, US Alabama, President of the Ludwig von Mises Institut Deutschland (www.misesde.org) and a founding member of the research network on The Role of Money in the Economy.

His research interests are monetary economics, capital market theory and, in particular, the Austrian School of Economics. His latest books are “Monetary Economics in Global Financial Markets” (2009, Springer, co-authored with Professor Dr. Ansgar Belke, University of Duisburg-Essen), “Ludwig von Mises – Leben und Werk für Einsteiger” (2013, Finanzbuch Verlag) and “Geldreform” (2014, Finanzbuch Verlag).