Monetary inflation Vs Price inflation

Most people think "inflation" is a general rise in prices, hence when they see "inflation" in the 2-3% band, and only rising 0.2% over a month (as is currently the case), they don't get too worried, thinking they are only paying an extra 20 cents for something that cost $100 a month ago.

What they don't understand is the critical difference between monetary inflation and price inflation.

Monetary inflation is the act of injecting new money (created out of thin air by the RBA) into the economy and it is the phase when your existing money is stolen by the government via a loss of value. Price inflation, a rise in the actual price, is not required for this hidden 'inflation tax' to be effective.

The reason for this is simple. Take the example of something that costs $100. In an organic market economy, when there are technological advances in the productive process, there is a natural tendancy for the price of most goods to DECREASE over time. So you might buy something for 100 bucks in 2008, and a year later the same thing only costs 95 bucks. But when you have a central bank engaging in monetary inflation, the same thing might cost $101. Unless you are aware of the monetary aspect to inflation, you might only think you are paying an extra dollar, when in fact you are paying an extra 6 dollars.

The same principle applies even when there is NO price inflation. For example, due to the speed of technological innovation, the price of mobile phones go down in spite of the monetary inflation. If you remove monetary inflation then the price of mobile phones would go down EVEN FASTER.

The point is that you are still subject to a hidden inflation tax whether the end prices go up or down.