Study of Inflation

I read today that Inflation was acceptable, as long as it could be contained to Food and Energy. I looked at this Statement, and said, ‘Huh?’ Now I know this is the Sentiment of many Economists, but why would they feel this way? They pick out two of the most inelastic Sectors of the Purchase economy, and proclaim that it is alright if only they go up. This compels me to enter into a discussion where I will be criticized by Everyone.

One of the greatest factors behind Inflation has always been Sector malignment. Various types of Shortages in some sectors expand the necessary budgetary allocations for those sectors to a greater percentage than normal. This does not necessarily generate higher overall Inflation rates, though they do affect Profit ratios throughout the economy. The later effect is highly constrained by the availability and Price of Capital throughout the Economy, hence the real excitement among Economists and Business leaders over the issue of Interest rates; All failing to state they would prefer to see a decline in the Profit ratios of Capital Credit, rather than declines in the Profits of Business. This is the practical rationale behind the great debates over easy Credit.

No one mentions a subject which I find apparent, though the lack of prevailing discussion perhaps simply means that the Effect does not exist; I would not bet on it though. Inflation is the structural mechanism to realign sector growth prices across the Economy. Overall prices will continue to rise until the budgetary allocation mechanism achieve balance (in sliding relative terms). Easy Capital does balance sharply-rising sector prices in the Short-Run, but this balance has limitations where Profit ratio losses cannot be restricted to Capital Returns. Failure of this balance brings on overall Inflation, until such time as budgetary allocations are in reasonable balance once again.

Specific Sector Inflation therefore determines the magnitude of overall Inflation which will eventually impact an economy, only affected by the singular elasticity of Demand in the original mis-allocated sectors. I can say, just recently having eaten Breakfast, than Food would seem relatively inelastic; Energy also seems somewhat inelastic as I prepare to do my daily Rounds. Maybe I will feel the Credit market is somewhat inelastic as well, once I begin to pay my monthly bills. The Principle to be considered here consists of the Thought that the overall economy must increase Prices to match the Sectors involved, the only alternative being an increase in Supply within these Sectors. lgl