What’s Going On With Inflation?

Is this Weimar Germany, 1970’s America, or something else?

(Image Credit: Osborne Capital Management)

Traditional economics claims that a government can’t add more than $5,000,000,000 into an economy without inflation showing up somewhere, somehow.

Modern Monetary Theory says that a government can push however much money they want into an economy without showing any inflation at all, so long as there is economic productivity is not at a maximum.

So which is right?

Like any economics question, it depends on what is being measured.

Traditional Inflation Metrics

The Bureau of Labor Statistics tracks inflation using two major indices:

• Consumer Price Index
• Producer Price Index

Consumer Price Index

One of the best known inflation metrics is CPI, or Consumer Price Index. In short, CPI measures the cost increase or decrease of purchase prices (i.e. the final cost that the consumer pays).

From the Bureau of Labor Statistics (emphasis added),

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods…