What is inflation?

Is there a difference between growth and inflation, and if so, what is it?

• Now, obviously, from the theoretical standpoint, growth and inflation are fundamentally different things.  In simple terms, growth is the expansion of the economy tied with a positive correlation to value.  Inflation is the devaluation of currency. But what about from a real-world, long-term [decade versus quarter] perspective.  I'm especially keen on the systems thinking perspective [a necessity with such a question]. I've been reading a book called "Secrets of the Temple: How the Federal Reserve Runs the Country," by William Greider [published in 1987].  I'm awestruck by the lack of a basic and fundamental understanding of economic principles by the Board of Governors and Chairman of the Federal Reserve as described by the book [and corroborated by my independent research].  The book begins by following Paul Volker's attempt in the late seventies and early eighties [then Chairman] to slow "inflation" by a new strategy [as the old strategies had failed].  Their actions had precisely the opposite effect - inflation skyrocketed. The book also highlights historic highs in inflation surrounding wartime in the US.  But what is war?  The creation of debt without value.  Chris Martenson's Crash Course in Economics thoroughly reviews this subject. The November 9th [2013] issue of the Economist had a cover article called "The Perils of Falling Inflation."  Their prescription?  That "inflation" rates can't fall below 2% [many places are currently near 0%] while ensuring healthy "growth."  But if inflation is necessary for growth, while it eats away at real growth, when can you get any gain?  Central banks can raise interest rates, which could bolster inflation up to 2%, but that growth would need to exceed 2% to have any yields... Google Public Data has a chart called Harmonized Index of Consumer Prices in Europe.  From the chart a few inflation spikes can be observed: end of '00 to into beginning of '01, Fall of '08, and Fall of '11.  EU growth rates were just about 0% in '01 and '03, and then were negative in '08 to '09, and then again in '12 and '13.  In other words, high inflation came at the beginning of economic downturns. So it's clear that inflation/growth don't literally track one another.  But could the two be described as the same function, one the derivative/integral of the other?  I'm sure it's not that simple, but maybe you catch my drift.  For example, might high inflation mark the inflection point from positive to negative of growth?

• Answer:

  Growth is real, inflation is synthetic.