When most people use the term inflation, they are referring to prices. The definition has changed over the years. In the distant past, inflation meant an increase in the supply of money. Rising prices was just the result of inflation (an increase in the money supply). When I use the term inflation, I generally try to distinguish the two when it is necessary.
The big question these days is why there is such a big difference between monetary inflation and price inflation. Since the fall of 2008, the adjusted monetary base has more than tripled. Yet, consumer prices have only been going up a couple of percentage points per year. Price inflation has been relatively mild, particularly when it is measured against monetary inflation.
I believe there are two main reasons for the big disparity. First, most of the new money that has been created since 2008 has gone into the commercial banks and is being held as excess reserves. This new money is not being loaned out (probably due to major problems and fears that the banks have). This has prevented prices from multiplying due to fractional reserve lending.
The second reason is the velocity of money. It actually amazes me how little attention this subject gets. Even most Austrian school economists do not discuss this topic, even though it is a major player. While I’m sure there are many people out there who discuss it, the only person I know of who discusses this topic frequently is Richard Maybury.
Velocity is the speed at which money changes hands. Since the fall of 2008, there are a lot of fearful Americans. Unemployment is high and the economy has been weak. People are uncertain about the future. A lot of people have stopped spending as much as they previously did. More people are paying down debt and saving some extra money for a rainy day. There is a higher demand for money. In other words, money is changing hands less frequently. Velocity is low compared to what it was.
This low velocity means that people are not bidding up prices as much. This has a counter effect on monetary inflation. The low velocity of money acts as a deflationary force on prices.
Velocity is psychological and is therefore very difficult to measure and to predict. Velocity is dependent on the mood of people. If people are frightened and uncertain, they are more likely to have a higher demand for cash. The one exception to this is if people perceive that monetary inflation and debt are getting out of control. If people have a perception that prices are going to go up fast in the near future, they are more likely to buy things so that their money is not devalued. This money would have a tendency to go into hard assets and bid up those prices faster.
In conclusion, just because there is high monetary inflation, it does not necessarily translate into high price inflation. There is a time lag and there is the issue of excess reserves. However, the biggest issue is velocity. If you can read the general mood of the people, then you will have a better chance of predicting where prices will go.