Inflation

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Contents 1 Overview 2 How inflation works 3 Causes of inflation 4 Managing inflation 5 Inflation as part of the EU III economic model 6 Acceptability of Inflation

Overview

Inflation is an economic game mechanism which raises the cost of various actions relative to percentage of Inflation. Inflation as a game concept represents the rate of inflation, as opposed to the price level. Inflation increases when a country mints monthly income into the state treasury, thus lowering the purchasing power of the money. This process can be compared to real life Hyperinflation, where the money supply experiences excessive growth, thus affecting the scarcities of money.

Through this game mechanism, Countries can choose between rapid expansion at the cost of bogging down the economy on the long run, or playing an economically safe situation and maintaining a stable economy in the long run.

How inflation works

The level of inflation can be seen on the economy screen of your national information. Inflation is a percentage multiplier relative to base price levels. For example, a nation with an inflation of 20.0% will have prices that are 1.20 times greater (e.g. 120%) than the base price. Thus, a province improvement which originally cost 50 ducats will now cost 60.

The following costs are affected by inflation:

• Army and Navy recruitment
• Army and Navy maintenance
• Building province improvements and manufactories
• Stability investments
• Research investments
• Spies, missionaries, merchants and colonists
• Advisors (both appointment and monthly salary)

Costs in events are not affected by inflation.

Causes of inflation

The primary causes of inflation are as follows:

1. Minting: Using a proportion of monthly income on the treasury slider. With the treasury slider fully to the right, and no factors diminishing inflation (see below), inflation will increase by 1% per year.
2. Inflation can also be added or reduced by an event (for instance the 'corruption' event).
3. Gold: Income that comes from gold causes inflation when gold income is greater than 40% of trade, taxation, gold, and production income combined. Vassal, toll, harbor fee, tariff, census tax, and other income are not included in this calculation.

Managing inflation

The easiest way to reduce inflation is to refrain from minting money (move the Treasury slider left). Census taxes add money directly to the treasury at the end of every year, and with careful fiscal management players can use this money to finance their operations in their entirety.

However, there are a few things players can do to reduce existing inflation:

• The national idea, national bank will offer a 0.1% decrease in inflation every year.
• Advisors can reduce inflation, 4 or 5-star advisors can be a godsend.
• The province improvement, Tax Assessor, available at government technology level 23 (level 31 in In Nomine) for a basic cost of 50 ducats diminishes inflation by 0.5% for that province. This benefit is then divisible by the total number of provinces a nation owns. Thus, if the improvement is in place in every province of a nation, a total inflation reduction of 0.5% will occur.
• Certain events, such as dramatic currency revaluation, will lower inflation, as well as moving a slider to free subjects giving a chance at inflation reduction.

Inflation cannot be reduced below zero. However, inflation-reducing ideas, advisors or buildings will allow the player to mint some amount of money without causing any inflation. For instance, a 0.1% decrease in inflation every year would allow a nation to divert 10% of monthly income to the treasury without incurring any additional inflation.

Inflation as part of the EU III economic model

Inflation in the game can be hard to understand because monthly revenue and census tax revenue are treated so differently. Monthly revenue is earmarked for economic/technological development and can only be added to the treasury at the penalty of inflation, whereas census tax revenue is added directly to the treasury and can only be committed towards development at an increased cost.

One way to imagine it is to consider "monthly income" to be a representation of economic activity, not government income. The "treasury" slider allows the government to mint money, but that new money destabilizes price levels and "crowds out" private economic activity and natural economic development.

Acceptability of Inflation

Acceptable rates of Inflation are debatable and differentiate per country and playstyle. Generally an inflation level of 10.0% is the normal cap, when speaking of the period 1399-1700. Any inflation over this should be avoided, as it will affect the long term efficiency of the country. At 20.0% inflation, the situation can be regarded critical, in this situation, immediate action will have to be taken.

Trade countries, or small countries, can often take larger amounts of inflation without feeling economical penalties. The teching of small nations often compensates for the inflation decrease.

For European countries, an annual growth 0.01% - 0.10% inflation is a largely acceptable raise, even with National bank in place, a 0.11% - 0.20% rise will become acceptable. As soon as the inflation caps to 10.0%, it is however advised to stop minting.

Asian/muslim/eastern/indian tech nations will always have a struggle with inflation to keep their technological speed at the same level. Generally, asians will have a hard time controlling their inflation, particularly because of the large armies and lack of National bank early on.