Reading some of the blog discussion about the central banks being inflation obsessed, I can't help but wonder if this is a cultural element that has been transferred into the game. Look at covenants. The mythic pound is a fictitious unit of account used to simplify what would, often, be barter relationships. This means its inflation adjusted! The covenants resources are being abstracted to a number that can be plugged into a spreadsheet because nobody wants to track every candle in their fictional wizards tower. The value of the goods produced by the covenant should be increasing along with inflation.
How would using inflation make the process of managing covenants resources more fun?
Inflation over a modern economy with fiat currency is caused by different factors than inflation in a local area caused by prosperity of specific industries putting money into the local economy. In a modern economy, inflation across the board is usually caused by a change in the money supply. Cheap transportation keeps prices of most goods relatively similar across the world, so you don't have prices of goods changing a lot between locations and the prosperity of one location causing the prices of goods to rise. The exception is those goods where it is difficult to move, such as services (Haircuts, tutoring, tax lawyers, ectera) and real estate.
In a period before cheap transportation by railroad and trucks, prices differed between locations based on the supply of money.
Covenants does a good job of explaining why local inflation happens once a covenant has been started in an area. If a covenant source of income is an emerald mine, and they sell their emeralds all over Europe, the fact that the amount of bread and wine and timber and wool and so forth needed in the area is increased by covenant activities and that this increased demand raises the price of those items would not cause the price of emeralds to go up.
And if the covenants primary source of income is agriculture?
It does, however, imply the necessity of large flying carts.
Well, OK - this is actually our saga's in-game answer to a number of things, but it also addresses inflation - by purchasing all over Europe and flying it back to the covenant, rather than buying locally. (And also allows the Covenent to take advantage of the "Create block of silver" spell more easily.) It also means that our teamster grog is running a highly-profitable salt-smuggling business. (Salt: only expensive due to taxation - so the farther you go inland, the more your profits go up.)
You mean land speeders?
Then the cost of food in the area goes down, but the cost of, say, glassware (which the covenant must still buy) doesn't.
Or, ya know, Emeralds (which magi, for some reason, like putting in their magic items. No idea why >> << )
Is a covenant really producing enough agricultural surplus for sale that it can have this effect on the price of food? Shouldn't a decline in the price of a common commodity manufactured by the covenant be governed by the income source variation rules and not the inflation rules.
For that matter, this seems to miss the point. The mythic pound is an abstraction of a barter relationship, not an actual sale for money. When a covenant buys emeralds it goes to its free silver stash, when a covenant goes to buy candles it trades three loaves of bread on a wheel of cheese. Inflation might actually be taking place in that those emeralds cost three British pounds instead of one. They still only cost one mythic pound as the mythic pound is a book keeping abstraction. In this case three pounds of silver (British Pounds) are being abstracted into one unit of account (mythic pounds) which is then bartered for one good (the emerald). Silver coins in mythic Europe are valued for the commodity value of their metal (though this might be changing) . The mythic pound abstracts the barter relationship into a currency for the sanity of the players. An increase in the price of good in non-mythic silver is a representation of the increase in the supply of silver in mythic Europe - and hence a drop in the barter value of the commodity. The mythic pound is meant to abstract away the need to track changes in barter value. A very good years harvest might manifest as a change in the value of a source of income (dropping prices for food) but should not show up as a change in the value of the mythic pound.
Inflation should only be a problem when you are moving goods from one part of Mythic Europe to another. If you sell silk for silver than try to buy food in the highlands of Scotland with that silver - pretty soon you are going to saturate the markets desire for silver. It might be better to collapse the value of the income source than to call this inflation. You can still get some candles for some bread and cheese, most likely at the same rate as before. It is the barter value of silver that has collapsed, not the barter value of cheese.
The fact is that medieval markets tended to be pretty inflexible in supply and demand roles. Guilds had a lot to do with that, so whatever goods your covenant adds to the marketplace are likely to get cheaper, while the ones you demand are likely to get more expensive. Arguing about which has the larger effect is really beside the point, and would depend on so many factors that it would be a sourcebook unto itself- one I might add with really poor potential for sales..