One king's pilgrimage flooded Cairo with gold and sank its price for years
In 1324 Mansa Musa, king of Mali, passed through Cairo on his way to Mecca with a vast caravan and spent or gave away so much gold that its value in Egypt slumped. A historian writing about twelve years later noted that it still had not recovered. Money itself can lose value when there is suddenly too much.
That is the core of inflation: a general rise in prices, which is the same thing as a fall in what each unit of money will buy. It is not about any one item. If shoppers suddenly prefer cucumbers to tomatoes, cucumbers get dearer and tomatoes cheaper, but that is a shift in taste. The word comes from the Latin inflare, to blow up, and in the American Civil War era it referred to the currency itself, as printed banknotes outran the metal meant to back them.
Governments have long inflated money on purpose. Rome debased its silver coins by melting them down with copper or lead and reissuing them at the same face value; when Nero came to power in AD 54 the denarius was more than 90 percent silver, and by the 270s almost none was left. Song dynasty China pioneered paper money, and when the Mongol Yuan dynasty printed heavily to pay for wars, prices soared, which made the following Ming rulers wary enough to revert to copper coins. In Western Europe, a price revolution between the late 1400s and mid-1600s saw prices climb perhaps sixfold, often blamed on New World gold and silver pouring into Spain.
Paper money made much wilder swings possible. Hyperinflations, usually defined as prices rising more than 50 percent a month, struck Weimar Germany, and Hungary after the Second World War suffered the largest paper-money inflation ever recorded. In the 1970s and early 1980s most industrial countries saw double-digit inflation before it subsided.
Today most economists favour a low, steady rate rather than zero. A little inflation helps labour markets adjust and gives central banks room to fight recessions, while avoiding the costs of deflation. Since the 1980s, independent central banks have largely held it down, a calm stretch economists call the Great Moderation.
Source: Inflation
