> Inflation can be seen as just the increase in money supply or an increase in prices.
Not quite. Price measures the values of the items being exchanged on both sides of the transaction. If you buy my widget for $1 today, and tomorrow you buy another for $2, that could mean:
1. The value of the currency has decreased.
2. The value of the widget has increased.
3. Some combination of both.
Inflation is only concerned with #1 and we attempt to suss out only the currency component by observing the change in price over a wide range of items frequently transacted for currency, which in practice typically means watching consumer purchases. If you see a general rise in price across all of what you are watching, it is quite likely that the change is a result of the change in value of the currency. If only one good in a basket goes up in price in those observations, it is likely that it is said good that became more valuable, not that the currency became less valuable.
Not quite. Price measures the values of the items being exchanged on both sides of the transaction. If you buy my widget for $1 today, and tomorrow you buy another for $2, that could mean:
1. The value of the currency has decreased.
2. The value of the widget has increased.
3. Some combination of both.
Inflation is only concerned with #1 and we attempt to suss out only the currency component by observing the change in price over a wide range of items frequently transacted for currency, which in practice typically means watching consumer purchases. If you see a general rise in price across all of what you are watching, it is quite likely that the change is a result of the change in value of the currency. If only one good in a basket goes up in price in those observations, it is likely that it is said good that became more valuable, not that the currency became less valuable.