2011년 9월 25일 일요일

Some words on the definition of inflation

자료 1: WHAT IS INFLATION AND WHY MUST THE CENTRAL BANK FIGHT HARD TO SUBDUE THIS MONSTER? HOW DOES INFLATION AFFECT THE ORDINARY MAN


※ 발췌:

Inflation is one of the most frequently used terms in economic discussions, yet the
concept is variously misconstrued. There are various schools of thought on inflation, but
there is a consensus among economists that inflation is a continuous rise in the prices.
Simply put, inflation depicts an economic situation where there is a general rise in the
prices of goods and services, continuously. It could be defined as ‘a continuing rise in
prices as measured by an index such as the consumer price index (CPI) or by the implicit
price deflator for Gross National Product (GNP)’. Inflation is frequently described as a
state where “too much money is chasing too few goods”. When there is inflation, the
currency loses purchasing power. The purchasing power of a given amount of naira will
be smaller over time when there is inflation in the economy. For instance, assuming that
N10.00 can purchase 10 shirts in the current period, if the price of shirts double in the
next period, the same N10.00 can only afford 5 shirts.

In the definition of inflation, two key words must be borne in mind. First, is aggregate or
general, which implies that the rise in prices that constitutes inflation must cover the
entire basket of goods in the economy as distinct from an isolated rise in the prices of a
single commodity or group of commodities. The implication here is that changes in the
individual prices or any combination of the prices cannot be considered as the
occurrence of inflation. However, a situation may arise such that a change in an
individual price could cause the other prices to rise. An example is petroleum product
prices in Nigeria. This again does not signal inflation unless the price adjustment in the
basket is such that the aggregate price level is induced to rise. Second, the rise in the
aggregate level of prices must be continuous for inflation to be said to have occurred.
The aggregate price level must show a tendency of a sustained and continuous rise over
different time periods. This must be separated from a situation of a one-off rise in the
price level.

자료 2: Core inflation: concepts, uses and measurement



Milton Friedman’s definition of inflation as a “...steady and sustained increase in the general price level”.2 Friedman emphasises the distinction “...between a steady inflation, one that proceeds at a more or less constant rate, and an intermittent inflation, one that proceeds by fits and starts...”.3 The importance of the distinction, according to Friedman is that the steady or persistent element of inflation will tend to be incorporated into expectations and, consequently, will be comparatively benign. Intermittent or transient inflation, however, will be much less benign, precisely because it will be less readily anticipated.

Laidler and Parkin’s definition of inflation as “...a process of continuously rising prices, or, equivalently, of a continuously falling value of money”4 also emphasises the persistence or continuity of changes in prices as a defining characteristic of inflation.

Arthur Okun’s definition of inflation as “...a condition of generally rising prices”8 and in John Flemming’s definition of inflation as “...the rate at which the general level of prices in [the] economy is changing”9

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