Inflation has always been an odd-ball for me to understand. It is one of those things people explain poorly, without conviction. The explanations that do come, say - inflation is the devaluation of money. Money is losing value.
Egads! That certainly is not a good thing, right? For the longest time, this simple definition formed the basis of my paradoxical belief that inflation is evil, yet moderate rates of it, indicate a healthy economic growth.
"What does that mean, how is that possible... Its okay, I am not an economist," has always been my chain of thought. A few days ago, though, on one of the trips, I felt it becoming a little clearer.
Inflation, I think is a product of evolving and multiplying needs of humanity. A 'healthy' rate of inflation just indicates the progress of the complexity of human needs. Money does lose value, but in a way that makes erstwhile basic needs as food, clothing, shelter etc., relatively more affordable; with newer needs taking their place as high value commodities.
No inflation, then, would imply no furtherance of needs; a stagnancy in the collective growth. Negative is even worse. Basics become dearer. An increasing value of survival basics is sure to be an indicator of distress. As needs diversify, and rungs are added to the pyramid, the base must get less dearer.
What if the rate is too high? I think that would cause others to lose confidence in the currency. Too high is probably always an inorganic phenomenon. Things such as, printing of too much currency etc. That probably impedes the whole "bottom-run-getting-cheaper" thing.
A sudden spurt in cash is sure to make junta lazy and less productive. More money to spend, less incentive to work, would skew prices of basic commodities, and commodities in general. And when there is a cash glut, and a supply crunch, prices outpace income. Not desirable.
Inflation is the Relativity of economics, I guess.
