The Common Definition of "Inflation" Is Wrong! It's Just Government Propaganda

Mike Maharrey Mike Maharrey

Mike Maharrey

January 12th, 2024 Comments

The Consumer Price Index for December came in hotter than expected but it’s a lot lower than it was a year ago. That means inflation is decreasing, right? 

Not so fast.

It’s important to understand that the term “inflation” as bandied about by government people and the mainstream financial media is vague and imprecise. The word simply means an increase. But an increase in what?

When government officials and pundits on TV talk about “inflation,” they almost always mean price inflation. This is what the CPI attempts to measure – how much prices have generally gone up in the economy. When you hear Federal Reserve Chairman Jerome Powell or some other government official talk about “cooling inflation,” they’re simply saying that prices are not rising as fast as measured by the CPI.

But historically, inflation didn’t mean “rising prices.” Inflation was defined more precisely as an increase in the amount of money and credit in the economy, or more succinctly, an expansion in the money supply.

Economist Ludwig von Mises defined it this way in his essay "Inflation: An Unworkable Fiscal Policy."

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.

A 1970s dictionary offered this definition of inflation.

A sharp increase in the amount of money and credit causing advances in the price level.

Notice in this definition that rising prices are the result of inflation – not inflation itself.

This is an extremely important distinction that has been almost entirely erased in the modern definition of inflation.

Henry Hazlitt is best known for his brilliant book “Economics in One Lesson.” In another essay titled “Inflation in One Page,” he explained why using a more precise definition of inflation is crucial.

Inflation is an increase in the quantity of money and credit. Its chief consequence is soaring prices.

Therefore inflation—if we misuse the term to mean the rising prices themselves—is caused solely by printing more money. For this the government’s monetary policies are entirely responsible. (Emphasis added)

Over the years, government officials, along with government apologists in the mainstream financial media and academia, intentionally shifted the definition of inflation to suit government purposes. The standard definition of inflation you hear during White House press conferences or a CNBC roundtable is basically just government propaganda.

Hazlitt alludes to the reason for this intentional change in definition. Redefining “inflation” as “rising prices” allows government people to shift the blame.

Mises explained it this way.

People today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise.

The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation… As you cannot talk about something that has no name, you cannot fight it.

Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar.

As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation. [Emphasis added]

By obscuring the fact that price inflation (a general rise in all prices) is the result of monetary inflation, government and central bank officials can blame “inflation” on all kinds of things. After all, there are a lot of reasons certain prices go up and certain prices go down.

For example, spiking oil prices after the invasion of Ukraine weren’t technically “inflation.” It would be better described as a price shock. Price shocks do, in fact, raise prices. And those price increases can cascade through the economy, causing other prices to rise with them.

But unlike price increases due to monetary inflation, decreases in other areas of the economy will generally balance out price shocks (absent inflation) as people shift spending patterns.

If people have to pay more for gasoline, they may cancel vacation plans or quit eating out. This drop in demand will cause hotel and restaurant prices to fall even as fuel prices rise.

In contrast, there’s only one thing that will cause a general rise in prices with no corresponding price decreases - an increase in the money supply - what we used to define as inflation.

Milton Friedman summed it up.

[Inflation] is always and everywhere a monetary phenomenon. It’s always and everywhere a result of too much money.

But thanks to the change in definition, there is no word for the thing that causes price inflation – money printing. Instead, we’re told “corporate greed,” or “Putin’s price hikes,” or “consumer expectations,” or a “strong economy” are causing prices to rise.

If we use the traditional definition of inflation, the culprit becomes clear.

Who expands the money supply?

The Fed and the federal government.

When you accurately define inflation, you know exactly who to blame. But if the people responsible for your pain can fool you into believing that the symptom of inflation is inflation, they get to wiggle off the hook.

Mike Maharrey

About the Author:

Mike Maharrey is a journalist and market analyst for with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.