Inflation

Inflation is general increase in good and services over a period of time. Inflation is typically measured by the consumer price index and the producer price index. A persistent decline in the purchasing power of money can also be considered inflation.

Government Debt causes inflation. War debt causes inflation. Inflation is 100 percent correlated with commodity prices. The commodity price index climbed slightly about 100 and signal inflation is slightly climbing.

1. Consumer Price Index (CPI) is a measure of the change in the cost of a fixed basket of goods
2. The basket of goods includes housing costs, electricity, food and transportation
3. The CPI is compiled by Bureau of Labor Statistics
4. CPI base year: 1982
5. CPI base: 100
6. 2007 average CPI: 207.342, which means that since 1982 there has been 107.342% inflation
7. Producer Price Index (PPI) is a measure of wholesale price levels in the economy

Rate of inflation:

The average since 1950 has been 3.75%. $2500 in 1950 dollars would have inflated to 21,978.82. In other words, if no inflation had occurred, I could buy a car for $2,500 dollars today.

Affects of Inflation: Inflation dilutes the money supply as the government prints money. Inflation causes interest rates and taxes to climb.

Manufacturing capacity is current at 70 percent.

The dollar is weakening against the Euro and Yen.

Deflation fears are receding

Using the CPI: Assume a basket of goods cost a total of $100 in, say, 2005. If that exact basket of goods cost $150 today, we would subtract todays cost by the year at which we are comparing (2005). Thus, prices would be inflated by 50 points. This number is represented, typically, as a percentage. So, in the example above there is a 50% inflation rate.

• The Onion: U.S. Dollar Slips Against Canadian Acorn (2005)