Inflation Explained

Inflation has two causes–the most common is excess government spending leading to more debt issuance and an increase in the money supply.  More money chasing the same number of goods and services equals higher prices.  Milton Friedmann literally wrote the book on this, a short book, and you should read it.  The other cause is occasional supply type shocks–something that is widely used in the economy for many other goods and services suddenly becomes in short supply and prices shoot up as people compete to buy it.  This is often seen with energy, particularly oil, which is embedded in almost every good and service.  But it can also happen more generically, for example if there is a massive shipping or dockworkers strike and goods simply can’t be transported to markets relying on them.  A truly massive drought or infection among animal herds may also cause a supply shortage.

Here is an excellent explanation of what happened in recent years under Bidementia.  The government spent like morons, literally throwing money around, the money supply had to expand to accomodate all that spending, and voila, prices skyrocketed.  It is still happening.  It identifies the specific Bidementia bills, including the laughably named Inflation Reduction Act, and shows the impact the spending under those bills, all deficit spending, had on inflation.  (CTUP Report)