Rising prices are not inflation. Inflation is expanding currency and bank credit, which in turn leads to rising prices. From Alasdair Macleod at goldmoney.com:
In recent weeks inflation has become a major economic concern. Nearly all the commentary emanating from monetary policy makers, economists, and the media is misguided, believing inflation is rising prices and must be addressed accordingly.
They are only the symptoms of inflation. The true cause is the expansion of currency and bank credit, which, reflected in the US dollar’s M2 money supply has increased substantially since March 2020, and now stands at nearly three times the level when Lehman failed.
After defining the differences between money, currency, and credit which together make up the media of exchange, this article explains how changes in the quantities of currency and credit translate into prices.
The solution to the inflation problem is not price controls, which are always counterproductive, but to return to a regime of sound money. This article shows what must be done to achieve this outcome and concludes that it is impossible to do so without a sufficiently serious financial and economic crisis to discredit government intervention in markets and to then allow governments to stabilise their currencies and reduce their spending to a bare minimum.
Defining inflation, money, currency, and credit[i]
A resolution of the inflation problem requires an understanding of inflation itself. It is an increase in the quantity of the media of exchange, whether it be money, currency, credit, or a combination of any or all of them. It is not a rise in the general price level. That is the consequence of inflation when the media of exchange loses purchasing power.
To avoid misunderstanding, it is important in any discussion about money to provide an accurate definition of what is money and what is not money. Let us clarify this at the outset:
That which is commonly referred to as money is more correctly any form of circulating media used for the payment of goods and services in an economy based on the division of labour. The term “circulating media” or “media of exchange” more accurately represents the common concept of money as the term is used today.