The Meaning of Inflation: More than Just Rising Prices
Inflation is a term that has been frequently discussed in Germany lately, especially due to rising prices. But what does inflation really mean? It is crucial to understand that inflation is not just an increase in prices, but rather an expansion of the money supply. This expansion is carried out by the central bank, in our case, the European Central Bank, to meet the financial needs of the government. The role of the central bank is particularly significant because it is directly linked to monetary policy and, consequently, the inflation rate.
The Role of the Central Bank and Politics in Inflation
Why does the central bank print more money instead of raising taxes? The reason often lies in the fact that increasing taxes is politically challenging, especially when taxes are already high. On the other hand, increasing the money supply is less obvious and is often not directly noticed by the general public. This allows the government to secure the necessary funding without provoking direct resistance. However, the relationship between money supply and prices is clear: when more money is put into circulation, prices rise, and understanding this dynamic is crucial for understanding inflation.
The Long-Term Consequences of Expanding the Money Supply
The consequences of a continuously growing money supply are severe and affect the entire population. Inflation not only leads to rising prices but also to the devaluation of savings and long-term assets such as pension plans. History provides numerous examples where states, in times of crisis, suspended the link between their currency and stable standards like gold to finance wars or other large projects. This monetary policy invariably led to the devaluation of the currency, with the citizens ultimately bearing the costs. It is therefore of utmost importance that the public understands what inflation really is and who is responsible for it.
In conclusion, inflation is primarily an expansion of the money supply, leading to price increases. It is not just an economic challenge but also a matter of the government’s responsibility towards its citizens. A correct understanding of this term is essential to take the right measures against inflation.