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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: J-L-S who wrote (23808)	8/17/2006 2:24:37 PM
From: Kirk ©	Read Replies (1) \| Respond to of 42834

“Higher prices for anything reduces purchasing power which is the definition of inflation.” Your definition of “inflation” is not correct. You are making it far too complicated. inflate... blow up as in a balloon or the price of gasoline. From answers.com in·fla·tion (in-fla'sh?n) pronunciation n. 1. The act of inflating or the state of being inflated. 2. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services. I don't care what causes somethings price to inflate... You can quibble all you want with technical stuff such as saying higher demand causes the price of oil to go up "not inflation" but inflation, when speaking of the CPI, is simply a measure of loss of purchasing power caused from too much money chasing too few goods or services which is demand. Brinker was quite clear in saying higher energy prices were deflationary and he is wrong. If they were deflationary, then the graph would have had CPI going down, not up, when energy prices go up. Bottom line... higher demand causes prices to go up. Prices going up causes loss of purchasing power. CPI measures this.

To: J-L-S who wrote (23808)	8/17/2006 8:09:09 PM
From: queenleah	Read Replies (1) \| Respond to of 42834

In a conversation regarding Brinker's comments on inflation, Kirk said “Higher prices for anything reduces purchasing power which is the definition of inflation.” To which J-L-S replied: Your definition of “inflation” is not correct. First, higher prices are one of the results of inflation; they are not the cause of inflation. Second, if you have to choose between buying X and Y, and you have to buy X as its price goes up, then you will have to cut back on your purchases of Y providing your money supply has remained constant (that is, no inflation). That is not inflation. Your purchasing power is the same; you just have to make different choices as to what you purchase with it -- X or Y; gasoline or beer. Excellent IMO, J-L-S. I would only add if it hasn't been said already, that speaking in general terms and not about this issue in particular, the fact that two variables rise or fall together never guarantees that one causes the other. We should never automatically assume that they are even related without further evidence. The rising or falling of both may be caused by a third or fourth or tenth variable or a combination of many variables.