Inflation Brief #3: Inflation versus Outflation
A New Term: Outflation
We need a term to distinguish non-inflation economic forces affecting the Consumer Price Index (CPI) FROM inflation. Those non-inflation forces are any of the many forms of scarcity or gluts that increase or decrease the prices of commodities.
For this broad category, I use outflation and it includes any economic force on the CPI that is not inflation. Think of outflation as those economic forces outside of inflation.
[I do not like outflation other than for its facility of the opposites, in and out. Its imagery is not satisfactory, but I have no suitable replacement for it thus far. For now, it is serves the purpose of discussion only as long as its usage is confined to the CPI.]
As I’ve explained,
the CPI is a virtual soup that is comprised of many ingredients. And inflation is only one of these ingredients.
Let’s refine this statement (mine).
I can still accept that the CPI is a virtual soup, but inflation is not really an ingredient. Rather, inflation is an economic force that acts on all the ingredients. And there are many other economic forces (simultaneiously with inflation) that act on the ingredients.
Today (10-20- 22), I read that the inflation rate in the Netherlands is 17%. Of course, we know that this number is the CPI of which only a small part is due to inflation. An overwhelming majority of the 17% is due to the scarcity of fuel, which affects many, if not all, commodities. And this scarcity affects these commodities unevenly while inflation affects them all evenly.
Note: The inflation [presently] affects the price of the fuel slightly. The scarcity of fuel affects its price and many other prices greatly. And the price of the fuel does NOT affect the inflation rate.
It is possible that inflation can rise to the point that the currency devaluation becomes an overwhelming majority of the CPI, but that is not yet reality.
And while inflation cannot be reversed, but can be halted by government spending restraint, the CPI can be greatly and quickly decreased by the elimination of those involved scarcities. This, of course, is true only as long as the inflation remains the small majority of the CPI.
Hopefully, comparing outflation to inflation will help to apply the CPI usefully rather than deceptively.