Newsgroup: it.economia
Titolo: Does dampening inflation dampen growth as well?

I'm trying to understand the concept of inflation.  Hope someone might
help me out.
I've learned that inflation can result from an increase in the price
of some precious commodity, such as oil.  Then the price of everything
goes up, because the production of almost everything depends on the
supply of oil.  (Is this cost-push, or something?)
Also, I've heard that inflation can result from too low an
unemployment rate.  (This one blows my mind, actually.)  Employment is
so high that virtually everyone is working.  Thus, the only way a
company can attract fresh blood, so to speak, is to increase wages.
(Is this demand-pull?)
The first kind of inflation makes sense to me.  After all, if the
Arabs increase the price of oil, then we're all that much poorer.  So
our currency should buy less.
But the second kind doesn't, particularly.  If the economy is working
so well that everyone's employed, why should our currency suddenly be
worth less?  Does high employment equal poverty or something?  Doesn't
make a lot of sense to me.
Someone said to me that the European Community has very little
inflation by virtue of controls which dampen the inflation.  How does
this happen?  I guess I can see that raising interest rates suppresses
growth, since people need to borrow money to expand.  But I don't see
how raising interest rates suppresses inflation itself.
Thanks in advance.

 help me out.
Inflation happens when too much money chases too few goods.
Money or currency denominated credits can cause inflation if production
does not increase.  A decrease in production needs to be met by a
decrease in the money supply in order to avoid inflation.
It's hard to measure production in any meaningful way in a changing
society in that some goods have shared use value.  The government
uses CPI and other indicies to measure inflation but since the basket
of goods may not reflect current consumer habits and social norms
an arbitrary deflator is being considered.
Contrary to common belief, an increase in price of some precious 
commodity cannot of its own accord cause inflation.  People can't 
spend the same money in two places, either they decrease consumption 
or increase debt/decrease credit or switch consumption to alternative
goods.  If the increased price is met by continued consumption then
there will be less money to chase the rest of the goods on the market.
Labor, like any other commodity, is responsive to supply and demand.
Under the assumption that laborers have pent up demand, the Feds
consider decreased supply of laborers as a leading indicator of 
increase demand for goods (too much money pushing too few goods,)
however if increased wages are realized as savings CPI measured 
inflation will not occur.
Business needn't borrow money to expand.  Business borrows money to
expand when it expects the return on the borrowed money to exceed
the costs of borrowing the money.  Increasing interest rates reduces
the profitablity of borrowed money.
Borrowed money works as well as any other to buy goods.  Unless 
borrowed money is met by increased production it causes inflation
as much as the government printing more money.
Productive capacity will help determine if pent up demand may
be met by increased production.  If industry is already working
at near capacity it cannot produce much more without increaseing
capacity and generally this requires more lead time than merely
ramping up production when there is excess capacity.
The rate of technology change may affect decisions to build excess
capacity.  One might delay building capacity one cannot currently
utilize when one may reasonably expect to purchase this capacity
much cheaper at some later time but prior to needing it, however
this decreases ones ability to respond rapidly to increases in demand.
I hope this helter skelter helps in some way.
-- 
--gary 
 
for...@accessone.com

Thanks in advance.
Regards, 
Grinch