I'm getting to be a bit of a fan of John Authers' comments in the FT. Here is a chunk of his latest column:
http://us.ft.com/ftgateway/superpage.ft?news_id=fto032820081215105972&page=2

....the balance of the research buzzing into my computer has peddled the contrarian idea that the worst of the crisis in world markets is over. Common threads of the logic go as follows: we had our moment of catharsis with the fire-sale of Bear Stearns; the authorities are coming to the rescue; the dreadful economic data from the US are contrarian indicators of a rally; and the charts suggest we have hit bottom. So despite all the fear, now is a buying opportunity.

This is seductive, both because it suggests we can make some nice easy money, and because we all want to be contrarians.

There probably will be a great buying opportunity at some point in the next few years. That is how big market sell-offs usually end.

But it is not here yet. Everyone else may be a contrarian; I am not.

Why brace for more? First, the shifts under way are profound because the underlying US problem was profound. The imbalances are the kind that take years, not months, to correct......

This was an unsustainable move in the tectonic plates of the economy. It needs the financial equivalent of an earthquake to bring us to a new equilibrium. The official response also shows that this is on a different scale from the market breaks most of us can remember.

Quite apart from the UK's nationalisation of a bank, we have seen the Federal Reserve and other central banks invent at least three new mechanisms that diverged from the way they have regulated markets for three-quarters of a century: for intervening in the money markets, for lending against mortgage-backed bonds, and for lending directly to brokers.

Meanwhile, many in the market now want the government to bail out the mortgage market directly.

The implications this would have for banks' long- term profitability are awful. It may yet be necessary for the US government to intervene directly in home lending, but it can only justify such a move if it then does one of two things. Either it will split up the financial industry to force it to be competitive, or it will regulate it more intrusively. Either way, profitability, and the wealth banks generate for its employees, will be on a lower plane.

As for the effects on the macroeconomy, they are yet to be felt. The UK is a good example. Mortgage lenders, most recently Nationwide, the nation's second biggest, are deliberately raising rates to make themselves less competitive. This is the very definition of a credit crunch, and it is only just starting.

It makes no more sense to pretend that the problems in the UK began and ended with Northern Rock than it does to claim that Bear Stearns drew a line under Wall Street's problems.

Let me make the point more subjectively. This does not feel like other incidents in my experience when markets have reached the point of catharsis........
In none of these cases was anyone still hoping the government would take over their business. Nobody is relieved at present. The presiding emotion is more one of nervous hope, although that is already giving way to speculation over where the next flashpoint will come. With such sentiment, we are primed perfectly for more disappointment.

It is only once hope has been utterly vanquished that contrarians (genuine ones this time) make money. My guess is that this will not come after a final cathartic crisis, but after a long drawn-out grinding decline. That fits the pattern of recent months, with a new alarum every few weeks as trouble hits a new part of the financial system.

I'm firmly of the same opinion as Authers. It will be a long and grinding decline - and most investors will have been sucked into using their firepower as the markets continue to move lower. For the reasons Authers alludes to, the current market is characterised by people attempting to "buy the dips" and "hope things get better"......

....but its beginning to look awfully like a stagflationary grind lower to me!

ee

ee

I have got to the stage where I don't have any opinion or expectations.

I just have not the first idea what the future will look like, other than probably not good, I just see huge uncertainty.

One idea I have is that progress cannot be achieved until fundamental and unpalatable facts are acknowledged, along the lines of roughly

(1) Maybe the entire financial system is insolvent ( too many promises have been made that cannot possibly be kept )
(2) As a species we are on course for catastrophe ( in terms of resources becoming exhausted )
(3) Happy motoring cannot continue indefinitely

I see no sign of this any time soon.

George ( I seemed to have turned uber-bear )

A good article.

One way of putting it is that we have had the collateral crunch, and the credit crunch here is just starting...

Simple valuation ratios look attractive, but the numbers hav'n't started to be cut yet. And Bond yields dont get anywhere near reflecting the likely inflation outturn - if yields go to inflation plus a risk premium of 3 or 4 then valuations on lower numbers suddenly don't look so cheap.

His charts may say it's over. Well they might allow for a bit of a rally, who knows. But the idea that a once in a century-ish type event has been discounted is laughable on a simple inspection of any long term chart.

ee

I particularly liked the quote "It is only once hope has been utterly vanquished that contrarians (genuine ones this time) make money."

It seems clear to me that the equity markets are still a long way from this point. Any bit of good news, even if it is a bit of good news contained within some of the really dreadful stuff we seem to get every day, is capable of triggering a rally. You only have to look at the days the markets rallied strongly on the whiff of a bail-out for one or other of the monolines.

People are looking for the bottom because they are afraid they will miss their chance to profit from the ensuing recovery. The true bottom will likely go unnoticed by all but a few because when it happens the rest will likely have given up.

Ben

A super article by Martin Samuels, a very good sports writer, who hits the nail on the head with this layman's view on economics:

http://www.timesonline.co.uk/tol/comment/columnists/martin_samuel/article3634764.ece

...you pop into Starbucks for a cup of coffee, you will be charged close on £2. For coffee. Think about it, because so few have. We read about sub-prime mortgage markets and global credit squeezes and receive the deep thoughts of financial experts that have caught a cold in every recession for the past 50 years, which is why the benefits from your endowment mortgage will just about cover a self-assembly greenhouse from Homebase, but nobody notices the details. Coffee, two quid. No rationalisation. No justification. In a recession, nobody can drop two quid for a hot drink three times a day, five days a week. Bottled water the same: £1.60 for 500ml to take away at Caffè Nero on Monday. And everyone has a sip. Our lives are full of inflated expenses that are propping up Brown's fairyland economy and, when the penny drops, this crash will be the mightiest ever. No wonder he looks scared.

WShak

ee

Nice article; I've been following Authors too. But then I read this comment of yours:

....but its beginning to look awfully like a stagflationary grind lower to me!

I am astounded at how widespread the assumption of future inflation is. I have been looking for an opportunity for some time to have a discussion about this and hope you will rise to my bait! I'll do the hard work and lay out my deflationary stall first, then you can tear into it. And I look forward to comments of other experienced Fools too.

So first, to make some boundaries for this discussion. I am assuming we are talking about conditions in the USA and UK though there could be other economies following a similar course. I assume that when you refer to inflation you allude to a return to 1970s style rampant inflation having the following characteristics and effects:
1. rising inflation in the face of rising central bank rates.
2. rising inflation over a long period: 10 to 15 years and possibly multiple business cycles.
3. development of an expectation of rising inflation.
4. growing wage pressures creating a positive feedback effect.
5. devastation of all fixed interest securities, particularly government bonds.
6. unemployment and recession have minimal effect on inflation (keeps rising across cycles)
7. nominal debt levels may rise but their real value is inflated away

I assume that reference to deflation is pretty much the opposite of the above.
1. bank base rate lowering has little efect on deflation
2. deflationary period could last for 10 years or more
3. there grows an expectation of future price falls
4. complete absence of wage pressures; possible falling wages
5. outperformance by fixed interest securities, particularly govt bonds
6. growing unemployment reinforces deflation by depressing spending
7. debt is no deflated away and takes years to be repaid

I hope you will not quibble too much with the above. My point is that if you are investing for an inflationary future, you have to believe in the full monty, not some half-baked notion that inflation is "rocketing energy prices" or "the Fed pouring liquidity into the system for a few months".


Now to me the 1970s style inflationary scenario looks inconceivable. This is my reasoning:
-There is a complete absence of wage pressures and unclear how these would arise. No militant unions today.
-The past 20 years have seen a falling inflation trend with no bottoming patterns. The twenty years leading up to 1970 saw a rising inflation trend
-Bond curves point to deflation not inflation. In the 70s bonds were calling inflation.
-Fed measures to inflate over the past 9 months have had virtually no effect on credit contraction. In fact short money appears to be more expensive than 6 months ago.
-price growth in non-discretionary items like energy and food are having a deflationary effect: they are causing reduced spending on discretionaries and forcing price reductions on retailers, NOT demands for higher wages
-Companies are showing willingness to cut profits and absorb input-price rises.
-Even "inflationists" are predicting a long grinding down of asset prices. The opposite happens in an inflationary scenario--asset prices rise.

I'm not saying there won't be rising prices in some sectors of consumer spending. I think the overall condition will be deflationary.

In my view, the fixed interest market, which is massive, is unambiguously pricing in deflation (or at least disinflation); are inflationists saying the bond markets have it wrong? If so, how do you foresee the devastation of government securities unfolding--a massive repricing of US debt will be unavoidable. Any believer in inflation has to think this one through and explain it, because if it happens the effect will be unprecedented IMO. We're talking about a massive outflow of funds from the dollar, default by the US government, risk of hyper inflation and banana republic status, aren't we? Is that REALLY what the Fed will allow to happen?

Look forward to your comments and rebuttal.

bareish

I have to confess to finding Authers' very annoying compared to Philip Coggan. The former's style, tone of phrase and rhetorical premature ejaculation just wind me up. "Short View suddenly got a very limp hand-shake" is the best way to describe my shortcomings... or his, to carry the metaphor to climax ;-)

To particulars:
....the balance of the research buzzing into my computer has peddled the contrarian idea that the worst of the crisis in world markets is over. Common threads of the logic go as follows: we had our moment of catharsis with the fire-sale of Bear Stearns; the authorities are coming to the rescue; the dreadful economic data from the US are contrarian indicators of a rally; and the charts suggest we have hit bottom. So despite all the fear, now is a buying opportunity.

I believe the point being made here is not just "buying the dips". It's rather:

- a) what the brokers are saying is that the authorities have stepped in and signalled they will not allow nemesis to ensue. It has nothing to do with the end of the bear market and beginning of a bull market. It's simply that with the collapse of BSC, there was a 10% chance of a situation in which the market would have to fall 25% and a 0% chance it was worth 10% more. With the Fed, Congress et al. stepping with a 10% chance of a package that meant the market was worth 10% more and signalling they would intervene to stop the real nightmare-stuff, that is sufficient to cause a 5%ish rally. Not the end of bear market, but a rational basis for a "bear-market rally" for sure.

- b) the brokers are merely pointing out that with stocks pricing 12-13x consensus 08 earnings, then those earnings can fall by a normal recession's worth of 20-30% earnings decline (albeit the broker's consensus has et to price this in!) and you still have fairly attractive valuations, especially relative to bonds. More bear market would put trough earnings on below-normal cyclically-adjusted multiples, which would be a clear buy. Note that in Europe and Japan, the dividend yield exceeds the 10y govvie yield. Income is higher in stocks and you get all growth and inflation "for free" as the risk premium...

This said, I do agree that the necessary adjustments to get the world back to normal will take years, not the least of which is a wholesale de-leveraging of the financial system. My personal problem is the way that Authers fails to differentiate between asset prices trying to price these shifts in, their prices and the shifts themselves. This translation, totally necessarily because it's trying to interpret markets that are trying to interpret as opposed to just interpreting ad-lib, is totally missing - as I see it.

I am not so sure the world is "grinding slowly" into a stagflationaty statis, ie growth slows while inflation picks up. I don't think that's what the FX and govvie nbond markets are saying at all. They're calling for outright stagnation, not stagflation. Precious metals seem to be calling for stagflation, OK. Industrial metals seems to be calling for a quick US recession and global reflation - oil too. Equities seem to be calling for a quick dip, "splash-n'-dash", and growth to recover with "inflation" being managebale because commodity cost pressures get passed through while wages won't pick up. Given the confusing signals being presented by ALL markets, not just the ones we happen to look at more, I'm personally choosing to reserve judgement at this point!

best,
DEM

It seems to me that the price action being seen in government securities reflects the process of deleveraging, not just by banks, but across the board. Investors et al see Treasuries as the only safe haven. What protection can you rely on if you hold significant levels of cash if you cannot be certain the bank with whom you deposit your cash is solvent.

If this process of de-leveraging, or the destruction of credit continues for any length of time it will almost certainly counter and probably exceed efforts by some Central Banks (most notably the Fed) to inflate their economies out of their credit problems.

I think if you include within the definition of inflation a net expansion of money supply and credit and conversely in the definition of deflation a net contraction of money supply and credit, and what we are currently seeing in the credit markets is a contraction of credit that is exceeding the attempts at increasing money supply it must be deflationary.

Ben

Hi bareish,

I am astounded at how widespread the assumption of future inflation is.....So first, to make some boundaries for this discussion. I am assuming we are talking about conditions in the USA and UK though there could be other economies following a similar course. I assume that when you refer to inflation you allude to a return to 1970s style rampant inflation

Sorry to nip your thoughts in the bud, but I'm NOT expecting a 1970's style rampant inflation! What I am expecting is:
a) negative or near-negative growth for an extended period of time coupled with
b) inflation driven by basic commodities - principally food and energy

Accordingly my expectations [aka guesses!!!] are roughly for RPI-measured inflation in the UK to range between 3.5% and 6.5% and for growth to be roughly between minus 2.5% and +1% [with the UK being somewhere in the middle of the global "pack"] .....but with the key element being the length of time this persists for..... perhaps 5-7 years, maybe even longer.

I don't see the central banks allowing the situation to get very much worse than this - but I DO think their actions won't be able to restore the confidence needed to reverse low growth. And accordingly I don't see the low growth/high inflation scenario trending in the way you suggest [rising inflation....growing wage pressures etc].....I see it as being fairly modest in degree but very persistent.

And I'd see conditions being somewhere between the two sets of alternatives you posit:

rising inflation in the face of rising central bank rates..... bank base rate lowering has little efect on deflation
Central bank actions having limited effect on the real world, with rate-cutting to stimulate the economy being constrained by inflation concerns [as we clearly have right now, IMO]

rising inflation over a long period: 10 to 15 years and possibly multiple business cycles.... deflationary period could last for 10 years or more
I agree the potential for a 10 year period, but see inflation as relatively modest, steady and persistent rather than rising.

development of an expectation of rising inflation...... there grows an expectation of future price falls
I think people will come to expect continued inflation in some costs [notably energy and food], near-zero inflation in other costs [such as housing, once we've had a blow-off and prices have come down 20-30% or so] and price falls being expected elsewhere [essentially items which are discretionary spending in the short-medium term, including consumer durables]

growing wage pressures creating a positive feedback effect...complete absence of wage pressures; possible falling wages
Unlike in "the old days" of the 1970s and earlier, I don't think wage pressures will be at all apparent, because we now have massive job mobility in the economy both in the UK and globally. Certainly I'd think we'll get falling wages in some sectors of the economy as UK labour continues to lose jobs to the Far East [and perhaps Africa in due course], and this will actually be one of the key reasons why inflationary pressures don't get out of hand!

devastation of all fixed interest securities, particularly government bonds.....outperformance by fixed interest securities, particularly govt bonds
I think the outlook will be pretty neutral for bonds. Govvies will probably be favoured for a couple of years yet as defaults rise elsewhere.

unemployment and recession have minimal effect on inflation (keeps rising across cycles)growing unemployment reinforces deflation by depressing spending.nominal debt levels may rise but their real value is inflated away........ debt is no deflated away and takes years to be repaid
Housing debt will act as a serious drag on the economy for many years, particularly in the UK [and parts of Europe.....curiously I think it will be less of a drag for the US economy because they will have perhaps been forced to confront the seriousness of the losses in the upfront hits they are now taking - and prices in the US seem a great deal closer to fundamental values than they do in the UK and Spain, for instance]


Turning to demully's post here http://boards.fool.co.uk/Message.asp?mid=10991374
I'd agree that the Fed interventions provide a rational basis for a "bear market rally"

and where DEM goes on:
I am not so sure the world is "grinding slowly" into a stagflationaty statis, ie growth slows while inflation picks up. I don't think that's what the FX and govvie nbond markets are saying at all. They're calling for outright stagnation, not stagflation. Precious metals seem to be calling for stagflation, OK. Industrial metals seems to be calling for a quick US recession and global reflation - oil too. Equities seem to be calling for a quick dip, "splash-n'-dash", and growth to recover with "inflation" being managebale because commodity cost pressures get passed through while wages won't pick up. Given the confusing signals being presented by ALL markets, not just the ones we happen to look at more, I'm personally choosing to reserve judgement at this point!

I think the expectations that I have outlined above are, effectively, the way "the circle will be squared" in relation to the market perceptions that DEM summarises above. Accordingly I think that govvies will come off a "top" at some point in the next year or so and I think equities will continue to grind steadily lower at a fairly slow rate, with occasional/regular bear market rallies [at least in the shortish term]. I'd expect corporate earnings to also [generally] grind lower also, with historical P/Es continuing to look attractive but with rallies being sold into to raise cash for delveraging etc.

Anyway....who knows really? I'll stick the crystal ball away now! ;-)

rgds

ee

ee,


Plenty to think about there, with enough detail to start working through the implications of what you're saying. First thoughts are that this is more benign inflation than I have seen suggested (a goldilocks scenario, given where we are now??).

However, it still implies a significant repricing of long treasuries: ten year bonds currently yielding 3.5%, would have to rise to around 6% or more in your scenario, I guess. The effect of this on mortgage costs? Costs for leveraged businesses? Implies massive losses by US creditors abroad who have been raising their exposure for years. Dumping of treasuries, continuing slide of the dollar and soaring gold price. Very nasty for the US and how do they keep it under control? By creating huge unemployment?

6 to 7 years of 5% RPI also implies approx 50% cut in real pension levels of imminently retiring baby boomers. Ouch. Will they sit back and allow this to happen?

WHere would energy prices be among all this? Since the inflation will be driven by energy in the face of stagnant wages, falling asset prices, hugely reduced consumer demand and so on, then the implication, I suppose is that oil et al will be continuing on its current trajectory, perhaps even accelerating. So $300 oil after 6 years. With the associated shift in power to the oil producers and destruction of China and India's growth.

Well I'm just musing here, because haven't thought it through thoroughly, but you see the problem. The bond market really is not expecting this and so the repercussions would be severe.

Have I gone wrong anywhere?


bareish

The bond market really is not expecting this

Or it is expecting it, but for now doesn't mind the prosepect of modestly negative real returns in exchange for relative security of capital. The current negative yields on some TIPS supports that view.

xben - re your post of the article
http://norris.blogs.nytimes.com/2008/03/28/if-market-prices-are-too-low-ignore-them/
yesterday....

It struck me [in the middle of the night!] that actually this is basically the equivalent of saying the banking systemn is in Chapter 11.... which I found a mildly entertaining thought, and one for anyone who thinks we're out of the woods to consider...

Now I don't have a problem with what the SEC are doing - partly because my impression is the prices implied from traded indices [partic Markit's] reflect speculative pressure in a very narrow market rather than a realistic pricing of likely outcomes, so to not force marking to those prices is more reasonable than it appears to the bloke that wrote the article.

As to inflation deflation above, I look forward to reading them properly... but it's largely a political decision isn't it.. and decline of the $ so far gives a reasonable hint of US respect for their creditors.

I wonder [a question rather than soft spoken view] if bond prices are pricing in deflation, or are where they are for flight to quality reasons... if it's the former [far and away the best long term outcome imo] then we're back to the Days of BM vigilantes, and more power to their elbows.

Hi bareish,

First thoughts are that this is more benign inflation than I have seen suggested (a goldilocks scenario, given where we are now??).

Not really. All I'm saying is that we now have central banks that are explicitly charged with targetting inflation.....so I don't see them letting it get out of hand, even if there are inflationary pressures!

However, it still implies a significant repricing of long treasuries: ten year bonds currently yielding 3.5%, would have to rise to around 6% or more in your scenario, I guess.

Not necessarily.

woweee commented:
The bond market really is not expecting this

Or it is expecting it, but for now doesn't mind the prosepect of modestly negative real returns in exchange for relative security of capital.

I think there is a significant premium for security of capital at present. It may get larger yet. I think that govvies will retain a safe haven premium for a while yet - and we'll only see long rates moving out when business investment demand starts to recover and raise demand for long-dated funds across the market.

6 to 7 years of 5% RPI also implies approx 50% cut in real pension levels of imminently retiring baby boomers. Ouch. Will they sit back and allow this to happen?

They don't have a choice!

WHere would energy prices be among all this? Since the inflation will be driven by energy in the face of stagnant wages, falling asset prices, hugely reduced consumer demand and so on, then the implication, I suppose is that oil et al will be continuing on its current trajectory, perhaps even accelerating. So $300 oil after 6 years. With the associated shift in power to the oil producers and destruction of China and India's growth.

Lets not get carried away. Yes oil prices might double from here over the next 3-5 years, though I'd be surprised if they treble. Certainly there will be a continuing/accelerating shift of power to oil producers - and a waning of the power of major consumers [notably the USA], but I think that whilst the growth rates of India and China will be trimmed by the price rise, I don't think they'll be destroyed .....that'd need a huge shift in labour cost differentials!

ee

With so many basing their views on inflation /deflation / grinding down ,on the future price and availability of oil ,it seems time to post the latest view from Symmons and Co



http://www.peakoil.com/article36751.html

Click on the PDF File

Thanks for that, Hen. Just looking at the chart on page 1...

I remember buying Oil the moment the second plane hit the tower...

...and losing money! :-((

See here re Simmons' views:
http://boards.fool.co.uk/Message.asp?mid=10982718&sort=whole

I remember buying Oil the moment the second plane hit the tower...

...and losing money! :-((

Yup - easily done!

I lost money on owning gold mining shares at the time of the 1987 crash, and on some S&P puts that expired just before Saddam invaded Kuwait and started the first Gulf War......

...markets often don't worry about the right things at the "right" time.

ee

Hi Ben,

I think if you include within the definition of inflation a net expansion of money supply and credit ...

I think that if you do this you are defining your terms wrongly. Inflation is about prices (and maybe wage and asset levels if explicitly included, but these are still prices).

OK money supply has some influence on inflation, but that does not make it the same thing. IMHO people who intermingle these terms are just confusing the debate. Surely the way to a clear debate is to separate out the different issues and use consistent terminology?

SA

SA

I think that if you do this you are defining your terms wrongly. Inflation is about prices (and maybe wage and asset levels if explicitly included, but these are still prices).

I'm not sure if there is a definitive answer to what most accurately decribes inflation. Here is a link to a dictionary definition

http://www.merriam-webster.com/dictionary/inflation

(I just typed "inflation definition" into google)

It defines inflation as:

a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.

Clearly I did not include the relationship to prices (as you point out) but I think the point still stands. By sticking to the narrow definition outlined in bareish's post we end up defining inflation by its effect (ie rising prices), not it's cause.

If price changes can be principally attributable to increases in the volume of money and credit relative to available goods and services, then in the event that the volume of money and credit relative to available goods and services falls one might reasonably expect deflation.

The question of whether we will experience inflation or deflation, or not much of either surely then depends upon whether the Central Banks have the balance right through lowering of interest rates and other more direct market interventions in response to the de-leveraging that appears to be going on in several of the worlds major economies.

I suspect the scale of de-leveraging required will exceed the ability of the Central Banks to re-inflate their economies and so on-balance would anticipate deflation.

Regards

Ben

I suspect the scale of de-leveraging required will exceed the ability of the Central Banks to re-inflate their economies and so on-balance would anticipate deflation.

Would an actively managed devaluation of sterling swap deflation for inflation? If so I wouldn't be surprised to see it happen given how damaging deflation (esp wage deflation) would be for an economy saddled with record debt. The $ may be able to just about keep its head above water in the face of drastic IR cuts but I'm willing to bet the £ wouldn't. Not sure how this would be managed politically given the BoE mandate on inflation but if push comes to shove....

lfc

Hi Ben,

I'm not sure if there is a definitive answer to what most accurately decribes inflation. Here is a link to a dictionary definition

http://www.merriam-webster.com/dictionary/inflation

(I just typed "inflation definition" into google)

It defines inflation as:

a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.

I cannot make my point more clearly than this sentence. The phrase "usually attributed" spells it out for me with it's indications of "sometimes/often but not always" and "A causes B". A sunny day causes warmer temperatures but that does not mean we should call warm days "sunny days", they are different things. This seems an elementary point of logic to me and I am sure others can come up with better examples.

Clearly I did not include the relationship to prices (as you point out) but I think the point still stands. By sticking to the narrow definition outlined in bareish's post we end up defining inflation by its effect (ie rising prices), not it's cause.

So what? It is what it is. My point is that inflation is an effect, it is rising prices. If you don't like the colour black you can't just redefine the word to mean "blue" (ignoring Orwell). Whether we like that definition or not is beside the point, all effects are defined that way. "He is dead" means he is dead, we don't try and make it mean "he was hit by a car".

If price changes can be principally attributable to increases in the volume of money and credit relative to available goods and services, then in the event that the volume of money and credit relative to available goods and services falls one might reasonably expect deflation.

But so what about "if price changes can be ...". Inflation is increase in prices, the debate about the cause is a whole separate beast. AIUI, it seems wrong to describe price changes as "principally attributable ... etc", although it strikes me as obvious that large increases in money supply will cause inflation (e.g. Zimbabwe) that is a long way from "principally attributable". There are other causes as well.

The only definition I would use that phrase for is "supply being less than demand", but that involves 2 variables whereas your money definition includes only one. I suspect this debate is coloured by many peoples' experience of the 70's inflationary era in which money supply was perhaps (probably?) a large contributor ... but maybe the next several years of dwindling oil supply will highlight the supply part of the equation ...

A final example (sorry for going on about this): consider a situation where money supply is static or falling but prices are rising. Is that inflation or not?

Ultimately, language is what most people mean by it, "kids" means children nowadays, not just offspring of goats, however much my Mum (a former teacher) may dislike it. AIUI, most people (including, I would guess, the majority of economists) mean rising prices when they say "inflation".

SA