"You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is but it's there, like a splinter in your mind, driving you mad."
--Morpheus (The Matrix)
Inflation, whether classically defined as expansion of the money supply incommensurate with underlying production or currently defined as a general increase in prices (nice review of the evolution of the inflation term here) is a phenomenon of the State. The State owns the printing press and creates money by fiat. The consequence of that money printing is an increase in prices.
Sometimes prices increase quickly and sometimes they increase slowly. There are various reasons for inflation's varied effect on prices. One is that there are many categories of prices--i.e., goods and services, commodities, securities, real estate, etc. Newly printed cash might flow toward a particular category while leaving others relatively unaffected--at least for a while.
For example, the Fed is currently printing about $1 trillion annually as part of its Quantitative Easing (QE) program. Much of that cash has been going straight to banks. Banks, being the first users of the cash, have elected to use it to speculate in stocks and other financial markets. It should not be surprising that stock prices are hitting all time highs while goods and service prices have remained muted. QE cash has flowed primarily thru securities channels, thus pushing up prices in that category.
Another factor that varies inflation's effect on prices is confidence in the currency. If people feel that currency is maintaining its purchasing power, then they will be more inclined to hold onto it. When people hold onto money, prices do not increase and might even decline. However, if they lose confidence in a currency's purchasing power, then people will try to get rid of it like a hot potato. Prices rip higher as people do so.
The State hopes that prices increase at rates that people take for granted or do not notice. That way, the State can print cash to fund its interests without fear of reprisal. If it can do so, the State possesses the perfect tool for confiscating resources: an 'invisible tax.' As long as people don't notice or can't see it, then the State will use it to pick as many pockets as possible.
The State, however, has a few problems. One is that, like most thieves, State always desires more. If a particular amount of inflation is working, then why not increase it a little? As such, the State is likely to escalate its money printing ways until it is finally found out.
Another problem the State faces is that it does not not have complete control over the factors that influence inflation's effect on prices. Although stock and other security prices have been primary outlets for QE-induced inflation, at some point other price categories are likely to reflect inflation as well. For example, high priced securities might be sold, and sellers might spend the proceeds on, say, goods and services which will push those prices higher. Banks might also elect to make more loans that effectively put QE cash into the hands of consumers which, again, pushes goods and service prices higher.
It is also possible that people begin to lose confidence in the dollar. In 1920's Germany, money printing practices of the Weimar Republic were in broad view. Yet it took years before citizens connected the dots and realized that this inflation would destroy the purchasing power of the money in their wallets and in their bank accounts. Once confidence broke in the institution known as the German mark, we witnessed a rise in prices like the world has not since seen in an industrialized country.
Inflation is a State-induced phenomenon. Inflation lines the pockets of the State and its interests--until the State loses control of it.