Inflation Simply Explained


There is an example of inflation that people see reported on the oligarchs’ news media that most people may not associate with what goes on in a country like Venezuela.

The example I am thinking of is what happens to prices when a natural weather incident disrupts normal life for a brief period of time. In New England we see this happen when a blizzard strikes. When the warnings of a blizzard are broadcast, people rush out to stock up on groceries and on snow fighting equipment. Some grocery stores run out of milk and bread. Hardware stores run out of salt to melt the ice, shovels to clear the snow, and flashlights in case the power goes out.

Some stores take advantage of the scarcity by raising the prices. This is a mini-example of inflation. Let us examine what has happened to allow inflation to start up. The government did not suddenly start printing money and pumping it in just to the locations that were threatened by a storm. These locations suddenly faced a shortage of goods that were needed in the storm. The amount of money stayed the same, but the supply of goods fell short of the demand. Parts of the country that were not threatened by the storm saw no rise in prices.

Now think what happens to a country that is sanctioned, embargoed, and otherwise laid siege to by the USA and its allies. Those countries don’t need to increase the supply of currency one bit to experience inflation. The goods that would have been bought at normal prices are suddenly removed from the economy. The price of the remaining goods increases because the existing money is chasing fewer goods than it used to.

A simple definition of inflation is “too much money chasing too few goods”. There are two factors here, the amount of money, and the amount of goods. A sudden change in either factor will have a serious impact on the relation between the two factors.

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