You need apprx 1,300 in 2008 to equal 1,000 in 1998 at the rate of 2.5% inflation you suggest. I think it’s higher than that if you live a middle class existence , which was my point.

Has GBP also measured the rise in hard asset prices. If it hasn’t I would argue that the stating point of using the GDP deflator as an infaltion indicator is wrongly premised.

The options of “inflation is an expression of prices” and “inflation begins as an increase in money supply” aren’t in conflict. They are both self-evidently true. The reason an increase in money supply is a problem is that it leads to an increase in prices (ie inflation). But this is only true if the increase in money supply is in excess of the needed increase in money supply! If money supply was kept perfectly constant, we would have deflation.

Nominal GDP isn’t wrong. It’s easy to measure. There are actually three ways to measure it — either add up all the production in an economy, add up all the consumption in an economy, or add up all the incomes/returns in an economy. If you think we’re systematically missing an extra 10% nominal GDP growth every year then you have a lot of explaining to do. And then a nobel prize to receive.

We know our nominal GDP and nominal growth statistics with enough certainty. What we don’t know is how it is split between inflation and real growth. Nominal growth has been about 5% a year… I think that is about half growth and half inflation.

I didn’t ignore your point about nominal GDP and the deflator.

You keep insisteng that inflation is an expression of prices whereas I argue that inflation begins as a large rise in the money supply. We’re both using different definitions as to what inflation represents.

Here’s my point.

Is a million dollars measured in 1998 dollars have the same purchasing power in 2008. I think the rate of debasement is higher than what CPI shows. In fact it would track pretty well by the increase in M1.

I’m not ignoring monetary expansions and I’ve never argued that money is neutral. But monetary expansions only lead to inflation when they are in excess of real GDP growth or real asset price increases. That’s why this entire debate comes down to whether the asset price increases have been real (as I argue) or a product of inflation.

But you can’t escape my previous comment. If we’ve had 10% inflation, then you need to discount our welfare by 10% per year. As we’ve had about 5% nominal growth, that means 5% negative growth each year for 14 years. That is basically a halving in welfare. I don’t believe this and I think it’s basically a crazy idea.

You need to decide whether you think there has been *real* growth in Australia over recent years. Because that implies inflation has been lower than nominal growth. I think the answer is an obvious “yes”.

It is impossible to measure. To argue otherwise is to argue that money is neutral.

InflationQ = an increase in the money supply.
InflationP = an increase in aggregate prices.

To be sure the two are linked but they are not the same thing.

We’re getting back to the definition of inflation. I think it’s the increrase in the money supply over the growth in GDP.

Inflation doesn’t have to show up in the prices of goods and services. It can show up in any part of the economy.

Narrowing of credit spreads was one example.

You can’t ignore monetatary and credit expansions.