The two definitions of inflation
August 4, 2024
What is Inflation?
Many words have multiple meanings. "Rat," for instance, can refer to a rodent or a traitor. Likewise, "surf" once solely described ocean waves, but now also describes browsing the internet. Inflation follows a similar path.
Two Definitions of Inflation:
- General Price Increase: Inflation is the general increase in the prices of goods and services within an economy. This is the most common understanding.
- Money and Credit Expansion: Inflation can also refer to the artificial expansion of money and credit. This definition is more technical and focuses on the real cause of rising prices.
Measuring Inflation in Kenya:
Using definition #2 we can use the M3 data regularly published by the central bank of Kenya and get this chart.
July 2024 Inflation in Kenya:
Here are the inflation numbers for July 2024
The Kenya National Bureau of Statistics (KNBS) reports a slight decrease in inflation for July 2024. Here are the highlights:
- Year-on-year inflation: 4.3% (down from 4.6% in June)
- Monthly inflation: Slight decrease compared to June
Inflation Drivers:
- Food and Non-Alcoholic Beverages: Highest increase (5.6%)
- Transport: 4.0% increase
- Housing, Utilities, and Fuels: 3.9% increase
Understanding the Consumer Price Index (CPI):
The KNBS uses the CPI to track price changes for a basket of goods and services typically consumed by households. This helps policymakers understand inflation trends and make informed decisions.
Data Collection:
The KNBS collects CPI data bi-weekly from various outlets across Kenya.
Price Changes:
- Food: Some items (tomatoes, wheat flour) decreased in price, while others (cooking oil, onions) increased slightly (one-month & one-year comparisons).
- Non-Food: Housing rent, kerosene, and electricity prices rose over the past year.
How Inflation Affects Your Money:
Curious how much your Kenyan Shilling has changed in value? See what 1 KES from 1963 could buy today using our inflation calculator available at yuthufu.com
Notes & References:
- Kenya National Bureau of Statistics (KNBS). (2024, July). Consumer Price Indices and Inflation Rates – July 2024. https://new.knbs.or.ke/cpi-and-inflation-rates/
- Central Bank of Kenya (CBK). (n.d.). Inflation Rates. https://www.centralbank.go.ke/statistics/inflation-rates/
- Wikipedia. (n.d.). Inflation. https://en.wikipedia.org/wiki/Inflation
- Mises Institute. (n.d.). It's All MMT Fraud: Monetary Policy. https://mises.org/mises-wire/its-all-mmt-fraud-monetary-policy
Posted by: Yuthufu