Such a basic idea even a five-year-old could understand.

Inflation is a highly misunderstood concept. In fact, people can't even seem to agree on the definition. Inflation, at its core, is an expansion of the money supply. If we were trading gold coins, it would mean more gold was being mined. If we were trading seashells (this actually happened) it would mean someone went to the ocean and brought them back to their mountain village. If we're trading paper it means more paper was printed.

A matter of logistics and scarcity.

The interesting thing about gold and seashells as currency is that the value of these assets very much depends on the logistical ability to transport them around. Using seashells as currency is a very fleeting way of solving the value transfer problem because seashells are very abundant in certain areas. Gold has a lot more staying power because it's a rare element that is usually always hard to find and doesn't degrade over time.

However the logistics issue has damaged the reputation of gold as currency many times over the course of history as well. The most common example of this is the California Gold Rush around 1849 (49ers). During that time it was more profitable to provide infrastructure (food/lodging/shovels/whores) to those greedy and brave enough to trek all the way across the country by ship or covered wagon.

And then once they got there gold was so abundant that it wasn't worth that much in the area. The only way to truly capitalize on the gold itself would have been to send it back east or somewhere else where gold was scarce. Even in today's modern world there are stories of mercenaries smuggling gold out of Africa at a discounted price to sell elsewhere.

Point being that medium-of-exchange and the ability to actually move money around to where it needs to go is of the utmost importance. This is why digital banking and the Internet have become such useful vessels for currency.

And let's not forget Rai Stones.

These massive stones were also considered currency, and the interesting thing about them is that they were purposefully designed to be completely immobile. Take that, logistics! Rather it was just agreed upon by the community consensus who owned which stone, how much they were worth, and the requirements for transferring the value from one entity to another. Many Bitcoiners will tell you that Rai Stones are required reading for anyone trying to further understand currency on a deeper level.

The problem with the actual definition of inflation is that nobody cares.

The usual result of inflation as an expansion of the money supply is that prices go up. "More money chasing less goods and services." And when prices go up people hate it and they call it inflation... even though that's not what inflation is.

Prices going up is a typical derivative of inflation, but prices can go up or down for dozens of reasons. Correlation is not causation; the cause and effect is unidirectional rather than a two-way street. Calling every single price increase "inflation" is extremely reductive and arguably even a celebration of ignorance. When prices go down do people call it "deflation" or complain about it? Of course not; it's a completely lopsided equation because the underlying logic is totally flawed.

DEFLATION

The funny thing about number going down is that nobody realizes it's a bad thing unless they own the asset going down or a politician told them they lost their job because of it. No one complains about the cost of housing going down unless they own a house. No one complains about unemployment until they get laid off. The Great Depression happened during the gold standard (and arguably played a big part of the problem).

It's easy to see that the entire paradigm of economic understanding is more often than not spewed in bad-faith and drowning in self-important pretentiousness. People tend to look at the world from their tiny personal bubble instead of trying to gain some global macro perspective.

This is why I say things like, "HIVE GOING X1000 IS A BAD THING!!1". Why do I make this claim? Because I'm right. That would be terrible. I'd basically have to sell 90%+ of my stack due to the complete lack of stability and sustainability of that environment. All of a sudden our "free transactions" are no longer free and it costs tens if not hundreds of thousands of dollars for new users to have enough RCs to never run out. Then secondary rent-seeking markets pop up selling RC delegations.

I'm getting off topic here but the main point is that I do not look at economics through a selfish lens of personal gain. It needs to work for everyone; that's the entire goal of an economy.

Cyclical Assets

The cost of certain commodities have a very distinct ebb and flow to them over time. Take gasoline for example. The 3-year chart above shows us the same pattern that petrol has been repeating for decades. In the summer: gas is expensive. In the winter: gas is cheap. This is just normal supply and demand playing out in the market. People consume less of this asset during the colder months. If I had a way to buy 12-month's worth of gas in January of every year I'd do it.

But again, NOBODY CARES

Gas prices going up is something that everybody unilaterally complains about, especially the culture here in America. I've commented on this many times. In both summers of 2022 and 2023 when the price was high I said just wait till winter I bet we get back to those local lows again no problem. Now we are heading into summer again and prices are going up. Everyone will call this inflation; and everyone will be wrong. Normal cycle is normal. Get over it.

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Measuring value as a function of time.

The funny thing about inflation is that the vast majority of people do not even have any currency in their bank account to dilute. How can the value of a dollar going down have a negative impact on someone when they don't even have any dollars to begin with?

In fact, most people have a negative net worth (they are in debt). Therefore dollar devaluations actually help these people because the dollars they owe back will be easier to acquire when they pay them back. This is another reason why deflation is the ultimate killer of any debt-based economy. When the debt owed back is HIGHER after a given period of time instead of lower that just messes up everything.

Of course APR ruins everything.

There's a reason why credit card companies are forcing people to take sub-prime loans rates as high as 30%. Straight up loansharking these days. Honestly they don't have much other choice. In a lending environment this risky in which defaulting on debt is high (on top of a devalued dollar) there isn't another option. Regardless of all that the logic still stands: it's easier to pay back debt when that debt is getting devalued. Getting a favorable APR is another matter entirely.

Living paycheck to paycheck

And finally we come to the main point. Because most people have a breakeven or negative net-worth: inflation has absolutely no affect on them whatsoever. The ultimate problem here is always going to be wages, quality jobs, and unemployment rate. This is a very important concept and one that many seem to constantly get wrong on purpose no matter how much evidence is presented to the contrary.

A classic example of this nonsense is showcased in the 1988 feature film Die Hard in which the price of petrol is prominently portrayed as 75 cents a gallon (sorry metric system). People automatically will see something like this and bitch and moan that it now x7 times harder to buy gas in 2024. After all, $0.75 x 7 = $5.25, which is about what they are paying for gas in LA right now.

The problem with this logic is that it completely disregards the fact that earning USD in 1988 was a lot harder than it is today. Nobody put their hard earned money into a bank account and just let it rot for the last 35 years. That's not a scenario based in reality, but it is the false reality that is constantly presented when comparing asset prices to previous decades.

Not only that, petrol (Big Oil) is also just one of those assets that is highly contentious. USA pays less for gas than any other nation because we'll literally go to war and kill people over it. Europe has always paid a much higher premium than we have, and for good reason (logistics). The price of gas is actually a terrible metric for trying to measure this type of thing for all these reasons and more (including the fact that crude oil is a diminishing non-renewable asset).

Another one thank you.

People love to post this chart of the dollar crashing to zero over the last 120 years. Again implying that a person would put their dollars in a bank and earn 0% interest on it for 120 years in a row. It's dumb. Stop it.

CPI and PPI

The Consumer Price Index is an estimate on how much number go up for a lot of the products we use. These are end-user products and the CPI is often regarded as a trailing indicator of "inflation" because it exists at the tail end of the economy.

The Producer Price Index focuses more on "inflation" from the standpoint of businesses that are actually creating the end product. For example if the cost of aluminum goes up it's possible that the price of soda cans could later increase because the aluminum to create the can now costs more to produce. The PPI is more about raw materials that will be used to create CPI product later. The PPI is considered more of a leading indicator than the CPI because increasing prices often manifest as a slow shockwave through the supply chain from start to finish.

When people talk about inflation, they usually refer to ordinary goods and services, which is tracked by the Consumer Price Index (CPI). This index excludes most financial assets and capital assets.

Why does everyone focus on the CPI?

Because again people only care about themselves so the lens of everything is filtered through how much they are personally affected by the increasing prices.

Conclusion

Inflation is not as big as an issue as people make it out to be. The same people who complain about inflation are the ones who don't have any currency to devalue in the first place. The true problem here has everything to do with the tail-end of production and the lack of quality jobs.

If wages are going up more rapidly than inflation then it doesn't matter how high inflation is. In fact high inflation in this scenario is preferable as it reduces the cost of debt within the debt-based system. The real problem occurs, not from inflation, but technological deflation and automation that cheapen the value of a person within the economy.

Capitalism sees us at things. People are objects to an amoral unthinking unfeeling economy. If we want to fix the problem of the economy being "bad" then we need to make the citizens within it more valuable. Unfortunately this is much easier said than done, but it's alarming that so many can't even see the problem and instead selfishly focus on short-sighted narratives that don't matter.