In a recent article, we learned that inflation is more complex than it seems. Apparently, it’s also influenced by a host of sneaky, behind-the-scenes factors that quietly chip away at the value of your hard-earned money.
Curious about these invisible culprits? Don’t worry! Dutch ECB board member Frank Elderson is here to pull back the curtain and reveal the mysterious forces driving inflation:
"The European Central Bank (ECB) must account for risks arising from environmental degradation..."
“If nature’s degradation continues, economic activities reliant on ecosystem services will be affected by disruptions in supply chains, influencing prices and, ultimately, inflation,” Elderson said.
We also find out that we're overall good:
"The ECB is tasked with maintaining price stability across the Eurozone, where inflation has recently returned to the bank’s 2 percent target"
Fantastic news! We’re back to an (artificially set) target that will only nibble away 2% of your savings every year. Totally fine, right? It just means we’ve "contained" the bad—the growth. But let’s not forget what 2% really means: it’s 2% worse than last year. And since this percentage isn’t an absolute value, the losses from previous years remain, with this year’s 2% compounding on top of that.
Oh, and let’s not overlook how inflation is calculated to stay conveniently low.
"Core inflation, excluding energy, food, alcohol, and tobacco, held at 2.7 percent, its lowest rate since early 2022."
Why exclude food and energy? Can you live without them? Sure, cutting back on beer and quitting smoking might help your budget, but try doing that with food or winter heating. Excluding these, keeps the numbers artificially low.
"During the ECB’s last strategy review in 2021, the institution introduced a climate action plan. Elderson has since urged policymakers to integrate environmental risks more thoroughly. “These challenges cannot be ignored in efforts to ensure long-term price stability,” he said."
But why does the ECB talks about climate?
Is it even part of its mandate? Well... , YES—because they care. In July 2021, the ECB announced an action plan to incorporate climate change considerations into its monetary policy framework. They’re determined to convince us that climate change is driving more inflation if left unchecked—whatever that means (and, of course, it conveniently feeds into the well-promoted climate change phobia).
Just for clarity, let's write down the definition of inflation given by ECB itself:
Broad increase in prices
In a market economy, prices for goods and services can always change. Some prices rise; some prices fall. Inflation occurs when there is a broad increase in the prices of goods and services, not just of individual items; it means, you can buy less for €1 today than you could yesterday. In other words, inflation reduces the value of the currency over time.
So, inflation is a general increase in prices across the board. Price changes driven purely by supply and demand aren’t inflation.
Let’s illustrate this quickly: you spend 5 euros on apples and 5 euros on nuts each year. Great—let’s call that inflation 0. But now, due to bad weather, climate change, or other factors, apple prices skyrocket. Let’s say you continue buying the same amount of apples but now pay 8 euros. If your budget remains unchanged, you’ll only have 2 euros left to spend on nuts. Everything balances out, one way or another.
Now let’s add a twist: suppose you know someone at the ECB who magically deposits another 10 euros into your bank account. Suddenly, you have 20 euros to spend on the same apples and nuts. In the long run, the prices of nuts (and everything else) will rise too. That’s inflation—a broad increase in prices. But that’s just the symptoms, not the cause! The core issue: inflation stems from monetary imbalances, not just isolated price hikes.
So, what's actually the true definition of inflation?
Inflation is Money Supply Growth, Not Prices Denominated in Money!
https://mises.org/mises-wire/inflation-money-supply-growth-not-prices-denominated-money
According to Murray Rothbard and Ludwig von Mises, inflation is defined as the increase of the money supply out of “thin air.” Following this definition, one can ascertain that increases in money supply set economic impoverishment in motion by creating an exchange of nothing for something, the so-called counterfeit effect.
General increases in prices are likely to be symptoms of inflation—but not always, however. Note that prices are determined by both real and monetary factors. Consequently, it can occur that if the real factors are “pulling things” in an opposite direction to monetary factors, no visible change in prices is going to take place. If the growth rate of money is 5 percent and the growth rate of goods supply is 1 percent then prices are likely to increase by 4 percent. If, however, the growth rate in goods supply is also 5 percent then no general increase in prices is likely to take place.
Ignorance is bliss? Nope. Don’t fall for that!
