Tell apart a thing getting dearer and money getting weaker.
Last year a coffee cost £3. This year the same coffee costs £3.30. Which fact would tell you the coffee got dearer, rather than the pound getting weaker?
Yes.A shock to one crop moves one price. Everywhere else, your pound still buys exactly what it did.
Not quite.That is the other case. When everything moves together, coffee has not changed against anything — the pound has.
Not quite.Two cafés on one street share suppliers and share a currency. Same-day timing names a coincidence, not a cause.
A price is a swap between two things: coffee and pounds. When a price moves, one of the two sides moved. The price on its own does not say which.
Which side moved?
A drought halves the olive crop. Olive oil doubles.
Bread, rent, bus fares and haircuts all rise about 6% in a year.
A new factory makes screens cheaper to build. Televisions get cheaper.
Every price on the menu rises 5%, and so does the pay of everyone reading it.
A war closes a shipping lane. Freight and fuel jump.
Yes.One thing moving is news about that thing. Everything moving together is news about the money.
Ten shops on one street. Slide to change how many of them have raised their prices this year.
1 of 103 of 107 of 1010 of 10
1 of 10 · shops that raised prices
1 of 10One shop is dearer. Walk fifty metres and your pound buys what it always did.
3 of 10 · shops that raised prices
3 of 10Three are dearer. Still a choice — and still a story about those three shops.
7 of 10 · shops that raised prices
7 of 10Now the cheap shops are the odd ones out, and they are being asked why.
10 of 10 · shops that raised prices
10 of 10Nowhere left to walk. Your pound buys less on the whole street.
You can see the prices but not the causes. What is the earliest sign that the money, and not the goods, is what changed?
Yes.Unrelated goods have no shared cause except the thing every swap has in common — the money on the other side of it.
Not quite.Size says how big a shock was, not what it hit. A single failed harvest can double one price on its own.
Not quite.Speed is not a cause either. A closed shipping lane moves freight prices within days, and moves nothing else.
Move the control to see what changes.
Your pay rose 6% this year. Every price you meet also rose 6%. What can you buy now?
Yes.Both sides of every swap moved by the same amount, so every ratio is where it started. The numbers grew; the buying did not.
Not quite.The pay rise is a bigger number of pounds, and each pound is weaker by the same 6%. A bigger number of smaller things.
Not quite.Prices did rise, but so did what you are paying them with. You only lose ground when your pay rises by less than they do.
Put the chain in order: how more money in circulation ends up as a weaker pound.
Tap them in order — first to last.
More pounds→Sellers ask more→Prices rise→Each pound buys less
The value of money is an outcome of prices, not an input to them.Yes.The pound's value is the LAST link, not the first. Nobody sets it anywhere — it is what is left over once prices have moved.
Coffee last year£3
Coffee this year£3.3
A tenth on the price. The £30 in your pocket did not move at all.
A coffee cost £3 last year. This year everything, coffee included, is 10% dearer. How many coffees does £30 buy now, rounded down to a whole coffee?
coffees
Yes.£30 ÷ £3.30 is 9.09. Ten coffees became nine. Your money did not shrink in your pocket — it shrank at the counter.
A country's currency falls by a third against the dollar. Nothing at home has changed — same crops, same factories, same workers. Which prices move first?
Yes.Those swaps are settled in dollars, so they reprice the moment the exchange rate does. Money is measured against everything you can swap it for, other currencies included.
Not quite.A barber buys almost nothing from abroad. Those prices move later, and only once wages have had to catch up with the imported ones.
Not quite.Rents are set in contracts that last months or years. They are among the slowest prices in the economy, whatever the currency does.
Lesson complete
A price is a swap — when it moves, ask which of the two sides moved.