I just read an article about the reasons why inflationary pressures persist despite sharply higher interest rates. Nowhere in the article did I see the one and only real reason for inflation: Money (duh!).
I mean, here it is in its simplistic form:
In the entire economy...
- You have one egg and one dollar. The maximum price for the egg is $1.
- You have one egg and two dollars. The maximum price for the egg just went to $2.
During the pandemic, and shortly thereafter, the number of "eggs" remained more or less constant. But the number of dollars literally exploded (see below).
Raising interest rates does not reduce the amount of dollars, it just makes them harder to borrow and, supposedly, slows down the economy, slows down demand, etc. etc. But for as long as there are "excess" dollars out there chasing a limited amount of goods and services... inflation!
Enough said...
PS It's the same in the EU and Japan..
