ABSTRACT
The cost of living naturally includes the money cost of everything that goes into a given pattern of driving. The consumer price index is not a cost of living index. To the degree that they diverge, however, the CPI is to that degree an irrelevant artifact because the only concept of inflation that has any economic significance is the cost of living. This chapter raises this point because the CPI has become increasingly irrelevant and misunderstood. Inflation is depreciation in the purchasing power of the currency. The concept of inflation that matters to us is an average over the whole society. Any residual deficiencies of the price indices are not, however, serious enough to raise the specter of hidden inflation. Inflation was in those days a matter of too much money chasing too few goods, and that in practice it was caused by rapid and sustained growth in the money supply.
