# Is inflation a given? **URL:** \ **Category:** Great Debates\ **Created:** [February 15, 2009, 12:47pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945 "2009-02-15T12:47:01Z")\ **Posts on this page:** 12\ **Page:** 1
**Author:** ![What\_the](https://avatars.discourse-cdn.com/v4/letter/w/f4b2a3/32.png) [@What\_the](https://boards.straightdope.com/u/What_the)\ **Post date:** [February 15, 2009, 12:47pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/1 "2009-02-15T12:47:01Z")
I won’t show my ignorance by trying to lay out the economic factors but it seems that many pundits are predicting future inflation. Is there a contrary school of thought given the same economic factors? Are the classic hedges against inflation (whatver they are) starting to increase in value? ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [February 15, 2009, 2:03pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/2 "2009-02-15T14:03:46Z")
In the US, the authorities are _trying to create_ (moderate) inflation. They may well fail over the next year or two, but not forever. When they succeed, inflation will probably be controlled fairly quickly. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [February 16, 2009, 2:57pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/3 "2009-02-16T14:57:26Z")
According to [this](http://www.thenation.com/doc/20081208/howl?rel=rightsideaccordian) analysis, at this juncture deflation is a far graver and likelier threat than inflation. ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [February 16, 2009, 4:12pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/4 "2009-02-16T16:12:02Z")
Inflation can be very bad, but a capitalistic economy requires moderate inflation (about 2.5-3%). Deflation is much, much worse. If inflation occurs due to the “stimulus” package, that isn’t necessarily a good thing. It could simply mean that there’s just more money in the economy chasing the limited number of goods and services, causing prices to rise, BUT, the number of goods and services produced are not increasing or are actually declining. This is possible due to government spending. The standard axiom is: “Government spending crowds out private investment.” But, it can actually happen in a bunch of different ways, though not normally seen in America, like government buying up all water, food, rice, etc. and giving it to the army. (This type of activity throws off the pricing mechanism needed for the economy to run efficiently). ---
**Author:** ![Superfluous\_Parentheses](https://avatars.discourse-cdn.com/v4/letter/s/8edcca/32.png) [@Superfluous\_Parentheses](https://boards.straightdope.com/u/Superfluous_Parentheses)\ **Post date:** [February 16, 2009, 4:28pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/5 "2009-02-16T16:28:57Z")
My (probably simplistic) understanding is that moderate inflation is good because it means that in the long term, it’s not worth hoarding money: basically, over time, money becomes worth less and property becomes more valuable (at least relative to each other) - it provides an incentive to spend money, especially on long-term investments and durable property. On the other hand, _deflation_ means that everything you own becomes less valuable quicker and cash becomes more valuable just by sitting in a box under your bed, meaning that the incentive to spend money decreases, and the economy stagnates. ---
**Author:** ![Strassia](https://avatars.discourse-cdn.com/v4/letter/s/e8c25b/32.png) [@Strassia](https://boards.straightdope.com/u/Strassia)\ **Post date:** [February 16, 2009, 6:14pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/6 "2009-02-16T18:14:29Z")
Also, long term loans are a better deal with inflation. Think about a mortgage on a house. Now that we all know that buying a house to live in is not a source of income, why should you do it? You will pay more in the short term (down payment, fees, and monthly payments) than if you rented. But in the long term, your monthly payment is fixed, so with inflation, your monthly cost decreases over time, while your use value remains fixed. After something like 7-10 years you break even or get ahead, and at the end if you sell the house for the same real value you bought it (inflation adjusted) you only paid the interest on the property. Same scenario with deflation, and every year your payments costs you more, and when you are finished paying off the house, you will have spent more dollars than you can get back for it, even excluding the interest. You would have been better off renting and keeping your down payment in a shoebox. Jonathan ---
**Author:** ![sqweels](https://avatars.discourse-cdn.com/v4/letter/s/f19dbf/32.png) [@sqweels](https://boards.straightdope.com/u/sqweels)\ **Post date:** [February 17, 2009, 11:08pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/7 "2009-02-17T23:08:38Z")
How come I’m not seeing deflation at the grocery store? Just the opposite. ---
**Author:** ![Strassia](https://avatars.discourse-cdn.com/v4/letter/s/e8c25b/32.png) [@Strassia](https://boards.straightdope.com/u/Strassia)\ **Post date:** [February 17, 2009, 11:55pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/8 "2009-02-17T23:55:49Z")
> [@sqweels](#): > > How come I’m not seeing deflation at the grocery store? Just the opposite. Because it is an average, not an absolute. Here are the raw numbers from the [December CPI](http://www.bls.gov/news.release/cpi.htm) report (for just December): > [@](#): > > Expenditure > Category > > All items… -.7 > Food and beverages .0 > Housing… .0 > Apparel… -.9 > Transportation… -4.4 > Medical care… .3 > Recreation… -.2 > Education and > communication.. .3 > Other goods and > services… .0 > Special indexes: > Energy… -8.3 > Food… -.1 > All items less > food and energy .0 Overall the inflation rate was -.7, with food -.1. Drops in the prices of transportation and Energy led the decline. But if you look at the 12 month unadjusted rate, you see overall inflation was .1 with food at 5.9. So food prices are going up, but other prices are going down. Jonathan ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [February 17, 2009, 11:59pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/9 "2009-02-17T23:59:35Z")
[QUOTE=sqweels] How come I’m not seeing deflation at the grocery store? Just the opposite. [/QUOTE] Because the white van is always at the corner. -XT ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [February 18, 2009, 12:55am UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/10 "2009-02-18T00:55:40Z")
> [@Strassia](#): > > Also, long term loans are a better deal with inflation. Think about a mortgage on a house. Now that we all know that buying a house to live in is not a source of income, why should you do it? You will pay more in the short term (down payment, fees, and monthly payments) than if you rented. But in the long term, your monthly payment is fixed, so with inflation, your monthly cost decreases over time, while your use value remains fixed. After something like 7-10 years you break even or get ahead, and at the end if you sell the house for the same real value you bought it (inflation adjusted) you only paid the interest on the property. > Jonathan True, inflation is bad for capitol but not such a bad deal for wage earners whose main asset is a home; unless, wages don’t increase with inflation. > [@sqweels](#): > > How come I’m not seeing deflation at the grocery store? Just the opposite. The fixed basket of goods used to measure inflation changed in the late nineties or under Bush and has since been a source of controversy. > [@](#): > > Very importantly, because of all such changes in the CPI calculation the resulting number for inflation that is reported by government no longer represents the actual costs of maintaining a constant standard of living, as it did in the 1970s and 1980s. Instead, the number more closely represents the costs of holding to an ever declining standard of living. > Thus, critics credibly charge, the official CPI significantly distorts real inflation in the downward direction, making it look much less threatening than it actually is in the real world. Increasingly, and for very good reasons, the man on the street in the United States doesn’t buy the official comparatively low 3% core and 5% combined rates of inflation. [Cite](http://www.atimes.com/atimes/Global_Economy/HF27Dj01.html) CPI uses [Hedonics](http://www.post-gazette.com/pg/05129/501565.stm) Here is a [Wiki](http://en.wikipedia.org/wiki/Hedonic_regression#Criticisms_of_hedonic_models) ---
**Author:** ![Alex\_Dubinsky](https://avatars.discourse-cdn.com/v4/letter/a/dbc845/32.png) [@Alex\_Dubinsky](https://boards.straightdope.com/u/Alex_Dubinsky)\ **Post date:** [February 19, 2009, 9:15pm UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/11 "2009-02-19T21:15:13Z")
Very interesting article on hedonics. I think I see the flaw. Hedonics adjusts for increases in quality, but doesn’t adjust for increases in expectation for quality. It tries to claim that computers are 100x cheaper today than ten years ago even though no one today wants to buy a 10-year-old computer (and can’t buy 1/100th of a modern one). So when it’s used to adjust Social Security payments, it’s used to tell beneficiaries that they should be living the same life they have for years (buying items of the same old quality). When it’s used to adjust monetary policy, it just misses the point completely. A better measure of inflation for the purpose of tracking the economy’s heat would focus not on directly tracking prices but on seeing how prices relate to input costs, in trying to analyze the justifications and forces behind apparent changes. (So if you’re trying to track inflation in the RAM industry, where capacity doubles every two years, you would look at producers’ profits – which have gotten incredibly low and are a sign of true deflation in the sector. You wouldn’t apply hedonics to just divide price by the ballooning GBs, arriving at a figure that tells you nothing.) ---
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [February 20, 2009, 1:22am UTC](https://boards.straightdope.com/t/is-inflation-a-given/485945/12 "2009-02-20T01:22:56Z")
Hyperinflation is coming…don’t let anyone kid you. I have made my plans-I plan to buy real estate. After 4 years of hyperinflation, I will own the properies for nothing!