Is inflation one of those concepts you know when you see, much like the late Supreme Court Justice Potter Stewart’s definition of obscenity? Let’s hope not, because much of our instinctive reactions as traders and analysts depend on quick judgments whether the latest macroeconomic developments are likely to increase or decrease reported inflation. Worse, as all central banks have some measure of price stability as one of their stated objective functions, we live in a world in which policy must react to an absolute definition of inflation.

What, then, would transpire if we didn’t understand what inflation is, what causes it, or how we should address it from a policy standpoint? Despite a widespread consensus emerging from the monetarist economists over the years and gradually accepted elsewhere that inflation is nothing more than too much money chasing too few goods and services, these questions aren’t farfetched.