NationStates Jolt Archive

The price of a loaf of bread...

20-03-2007, 09:25
The question of growing inflation across the globe has been one that has been considered long answered. Yet, when the leaders of world government hold global warming and evolution up to the harsh light of scrutiny, it's time to ask some questions:

Firstly, are prices in Europe rising as the result of the introduction of the Euro? Most people would tell you definitively, yes. Yet, when asked the price of an average item, say a loaf of bread or a movie ticket, pre-euro, by researchers for WTO, an overwhelming majority vastly underestimated the cost. This is because we like to clothe ourselves in nostalgia and just accept that the price of things must have risen because people are complaining about them, in spite of declining costs for many electronic goods and big-ticket items like cars.

Secondly, how effective are interest rates in controlling inflation? Let's take a deeper look into this, the inflation rate is measured via a record kept of the prises of common items such as groceries, homes and so-on. When the rate begins to rise, governments will often try to put a clamp on the rate to which an item exceeds it's dollar value by raising interest rates. This has the effect of putting the squeeze on home buyers, making mortgages less-affording and thereby reducing growth in home prices. Since homes are the highest priced items on the inflation index, this slows the rate of interest rise. The problem is, this doesn't actually improve the price of a loaf of bread, instead, it means the family who needs to buy it to make sandwiches is forced to default on their home-loan.

Thirdly, is inflation bad? Not always, inflation simply means that the value of an item has exceeded it's previous position in comparison to the dollar. When currency was fixed to a gold standard, this wasn't an issue, because as the value of commodities rose, so did the dollar. When our currencies are commodities themselves, subject to supply and demand, they are tossed afloat on the sea of commerce, left to sink or swim, depending on the tide. Understanding that if we are to treat currency as a common commodity, that we need to ensure that it when the value of bread rises, the amount of currency flowing into the pockets of consumers rises equally, otherwise the natural trend of perceived value will become our undoing.
20-03-2007, 09:34
Glorious Freedonia
21-03-2007, 00:01
I cannot respond to your first two statements. However, I want to respond to your third point. Inflation is bad. Although I like it when my income inflates along with or in excess of inflation, there is no gurantee that this is so, especially if the inflation is not accompanied with real income growth which has to happen a lot.

I am curious about the effect of deflation. Would deflation be bad? Does this depend on whether you are primarily a debtor or creditor?