After finishing my junior year and almost finishing my minor in economics I never really wondered were inflation really comes from. After taking a class on "Theory of the Firm and Market Policy" and another class on "Money and Banking" I was taught about influences on inflation such as the interest rate, the money supply, government policy, and many other features of the economy that can effect inflation. During the process of reading The Wealth of Nations I came across the actual cause of inflation. The actual cause of inflation is the dearness of goods within a society. Dearness can also be looked at like demand. The key to causing inflation is that the market goods as a whole become more dear or in higher demand to the people of that society. If only a type of good or a specific product becomes in higher demand such as in trends it will only cause a price increase for that good but not inflation.
In my opinion economics can never be fully understood until you understand psychology. The psychology behind inflation is what I like to call the "want problem" The "want problem" is the more wealth (which is the amount of goods commanded by an individual) a person gains the more wealth they want.
The United States is a good example of inflation. The United States is typically in a slow constant inflation. The people of the USA continually become wealthier and want more luxuries or goods that they don't need. Look at the so called standard of televisions. I know and have seen people of poor class (around $25,000 annual income) who have bought a flat screen television with all the bells and whistles (size, HD, and etc.). Now these individuals still had a smaller less extravagant television that worked great before their new purchase but made the purchase to "keep up with the Jones" whether they know it consciously or not. The example with the USA and televisions can be compared to many other items such as cars, phones, electronics, and the list goes on.
As you can see the amount of luxury goods Americans consume continues to grow not on new technology and new goods but it is the amount of luxury items that each American is consuming.
As I stated before there are many other factors that can affect the inflation rate or even cause deflation but the derivation of inflation comes from the dearness of goods within a society's market.
