0: One of the oddest things about economic life is that the prices for things keeps rising?

6: Incomes and prices in the past were amazingly different from what they are today [in] Pride and Prejudice, Mr.

12: Darcy supposed to have [been] one of the richest people in britain

15: It's 1813 and his income is 10,000 pounds a year today

20: That's less [than] [half] of what a primary school teacher straight out of college would earn in sense and sensibility

26: [there's] an argument about whether an income of 20 pounds a week is enough to make you well-off and the answer is yes

33: It's there in living [memory] to a cinema ticket was 30 p in 1970 today

38: It's 13 pounds, so what does inflation happen and should we worry if it does? Why does inflation happen

45: Government's track inflation, obsessively and try to keep it low

49: there's a vast amount of [data] collected all the time to ensure [that] governments can say with amazing precision how the

56: Inflation rate is going

57: is it on track for two point three percent per annum [or]

60: Might the increase of low point three eight percent in February be a cause for alarm

65: This is in big historical terms a relatively new concern

69: In the 17th century the Spanish Empire essentially collapsed from inflation without even realizing it was occurring

76: So over time societies have become obsessed with measuring [inflation] and very focused on managing it

83: So why is there inflation? What makes it happen there are basically three reasons? Cost push inflation

89: The first is what economists call

92: cost-Push inflation

93: This is where the costs to businesses rise and are then passed on [to] customers

97: There can be a lot of reasons for these rises firstly raw materials

101: Especially oil might get more expensive for a very nice reason because a lot of countries are developing and doing well

108: secondly workers might be asking [for] more money and

111: Succeeding either because they've organized themselves well politically or because schools and colleges haven't been training enough workers in the skills that companies need

120: Thirdly land rents might be increasing because not enough factories and offices have been built which tends to come down to political

127: Failures around building permits the result of all this is that businesses then push their extra on to the consumer by raising prices

135: They don't want to it's a scary move but they have no choice. They'd go out of business otherwise Demand inflation

141: The second kind of inflation is called demand inflation

144: This is when there are increases in the number of people who want something whose supply can't keep up

149: The most common cause of demand inflation is an otherwise rather nice thing that people are getting richer and have more money to spend

157: That's why government can cause inflation by lowering taxes everyone loves tax breaks because they raise disposable income

164: But in the longer term raising demand can also cause price rises thereby negating some of the initial boost of the tax break

173: similarly a fallen interest rates may cause short-term pleasure and long-term inflationary pressure if

178: Interest rates on loans or mortgages fall we might be tempted to take out a loan [to] buy the new car

184: We've always wanted but the car company sensing solid demand will soon enough

189: Jack up the price if banks and governments inject more cash and credit into the economy people have more money to spend

195: But if they're all chasing the same number of goods as before [it] just means they can all offer more for the same

201: This is what happened around housing in the uk particularly in London

205: They were broadly the same number of houses there were 25 years ago, but they all costs an absurd amount more Printing money

211: The third classic cause of inflation is government's printing money

216: There's a deep logic behind this idea which can at [first] sound almost criminal

221: Governments often want to stimulate the economy to create more jobs

224: So they print more money this can be done literally by increasing the number of notes in circulation

230: Or they can do it by increasing government

233: Debt or by letting banks make bigger loans on the same security in all these cases the amount of money in circulation

240: Increases, but there's a big problem because after a while it means the worth of every note starts to fall because more notes are

247: Chasing the same number [of] things to buy. There's more money about but it doesn't buy you more it just pushes up prices

255: However, there is a possibility here spotted by the economists and [Philosopher] John Maynard Keynes

261: It takes time for the value of money to fall so for a little while

266: There can [be] more cash around and prices haven't yet risen this is a window of opportunity

271: [that] economies can with a lot of luck [cease]

274: At such Goldilocks moments people can actually increase their consumption

279: Firms can afford to hire more workers and buy new machinery and once they've done that production will increase

285: There will be more stuff to buy before inflation is eaten up the [gain]

289: So there's a real expansion a bit of inflation can grow the economy

293: That's a big but contested idea

296: The argument is that it doesn't matter if prices are going up [ten] percent every year [if] wages are going up 15 percent

303: So deliberate government-led inflation can be a mechanism for growing the [economy]

308: But it's a very risky move which is often backfired and been attacked by the great enemies of the Keynes ian's economists people

315: we now know as the

316: Monetarists who believe that anything which increases inflation is always going to [be] an issue and must be avoided at all costs

323: whatever the short-term The real problem

325: So why is inflation such a problem the real problem? Is that not everything inflates at exactly the same rate if

333: Everything went up by hundred percent a year and so did everyone's income and it was all totally steady and predictable

339: It would be weird

340: But it wouldn't actually do any harm the harm comes from the fact that not everything changes at the same rate Inflation is bad for savings

347: in 1941 in Hungary

349: inflation reached

350: [150,000] percent each day a jelly bean that [cost] 10 p on Monday morning would therefore cost the equivalent of

357: 150 pounds on Tuesday morning, and

360: 225,000 pounds on Wednesday morning, that's incredibly complicated

364: But it's a problem [only] [because] other things would not be increasing as fast

369: If you kept your life savings under the mattress you'd be wiped out in a day [or] two

374: The money that could have bought you a house on Monday would get you a jelly bean on Wednesday

378: This is the Ultra Extreme case, but it illustrates a basic point

383: Inflation is bad for savings

386: There's no point in putting money aside, and that's a pity because saving money the attitude of saving up for things before you buy them

394: Is an admirable?

395: characteristic

396: keeping inflation Low rewards prudence

399: It helps long-term planning because you can know what your money will be worth in the future and this rewards taking care around costs

408: Ultimately what inflation reflects is the instability of the world and of life itself?

414: Prices rise because we can't yet keep the complex system known as the economy under control

419: There's always something going wrong or growing or falling or failing somewhere

424: Ideally would keep inflation under control with a more or less fixed amount of money chasing a more or less stable amount of Goods

430: But in reality [low] inflation is extremely difficult to achieve because so many factors can derail it

438: cost of Materials cost of [Labour] productivity

441: Taxes falling or rising exchange rates again falling or rising a growing domestic economy a neighboring economy. That's growing

449: Falling interest rates the buying of government bonds or the printing of money in the end we may have to accept that?

455: Inflation is a bit like the weather or our own moods something that's inherently rather unstable something whose ups and downs

461: We must endure even as we try to mitigate the extremes learning to live with inflation belongs to wisdom