Inflation

BBC NEWS | Business | Chinese inflation at decade high

To my friends, please read the post before the article. This will sound boring but just think about it and it will make sense, then read the article and laugh.

Inflation is NOT just a rise in prices. Inflation means that your money gets less valuable overall.

M x V = P x Q

M = the amount of money in the economy
V = the speed that people spend that money after they get it

P = the general price level
Q = the quantity of real wealth on the economy

The idea works like this:

1. People use money to buy stuff, the more money there is relative to the amount of stuff, the more money you have to spend to buy each piece of stuff.

2. It takes time for people to buy stuff, the faster people use their money to buy stuff, the less stuff there seems to be to buy, but the same amount of money, so refer back to rule number 1.

Those two events are what cause prices to rise.

Parts of that article talk about how a disease in the pig population is causing a rise in price of food, and that it might spread to a rise in all other prices.

Now, a pig disease would decrease the amount of pig stuff there is for people to buy, which would raise the price of pig and stuff like it (aka, food), but can someone please explain to me how a rise in the price of pig meat would raise the price of a chair in the way that inflation would? Rising prices are a sign of inflation, not inflation itself.

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