What Really Causes Inflation?

Maybe Central Bankers Should Take the 5th. Their Illogical Utterances Are Incriminating.

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Cutting To the Chase

1. Our major institutions increasingly seem incapable of logic, reason and genuine debate. Mass Formation Psychosis (MFP) may help explain why.

2. The Iranian oil shock exposes that problem perfectly. Modern central bankers often appear not to understand, or at least cannot explain, the very inflation process they claim to manage.

3. At their best, they distinguish between a one-off price shock and sustained inflation. At their worst, they simply say higher oil prices keep inflation high. They cannot even tell a consistent story.

4. Even when they invoke second-round effects, wage pressures and inflation expectations, they never explain the mechanism by which sustained inflation actually occurs.

5. A simple free-market model with a constant money supply suggests a very different conclusion. Supply shocks change relative prices and the Allocation of Resources, but they do not generate sustained inflation.

6. Even allowing for changes in the velocity of money does not rescue the orthodox explanation. Sustained inflation still requires continuing growth in money expenditure.

7. Next time we remove the final assumption. What happens when money itself is produced by the market? The answer, I believe, overturns much of modern monetary economics.

Cognitive Dissonance, Central Bank Style

The recent Iranian oil shock provides a rare opportunity to observe how modern central bankers think about inflation. Their statements reveal two distinct strands of reasoning.

At times they draw a very careful distinction between a one-off increase in energy prices and a genuine inflationary process driven by changing expectations, wages and broader pricing behaviour.

This very short clip from former Fed head Powell is a good example. It seems expectations are important. You are probably asking how does it work from an oil price shock to continued inflation through an expectations channel?

At other times they simply state that higher energy prices are keeping inflation elevated, without explicitly explaining how the transition occurs.

It is all very confusing.

Waiter, Hmm… I Think I Will Have the ‘Word Salad’. Thanks.

I don’t want to torture you but at least watch the first few minutes of this video with Christine Lagarde, President of the European Central Bank. If anyone can decipher it, please let me know. And how about the Bobble Head Sycophantic Interviewer, she becomes important in this whole story to follow.

Lagarde, as she kindly reminded us in the video, was also a former head of the IMF.

The Sorry State of Our Institutions

Everyone, this is the sorry state of our economic and financial institutions. That includes the mainstream financial press who refuse to ask any challenging questions of the demigod Central Bankers, even when they are talking complete undecipherable gibberish.

The problem goes well beyond central banking. Across public health, the media, politics and economics, our major institutions increasingly seem unable or unwilling to subject their own assumptions to logic, reason and genuine debate.

Mass Formation Psychosis (MFP)

The recent Senate hearing have highlighted the sorry state of our institutions in another field. There has been lots of analysis as what to the hell happened back you know when.

Some interesting theories have emerged.

You have probably seen the resurgence of MFP recently bought back into focus by Dr. Mattias Desmet

Beside an explanation of the events during COVID, MFP has also been given as an explanation of why and how the Nazis in Germany and the Communists in Russia and China were able to come to, and stay, in power.

I Can’t Work It Out, Can You?

I’m still trying to figure all this out myself and have a very open mind. I reckon there may well be something to MFP.

Here’s a two-minute summary for the time deficient.

Did the 20^th Century Horrors of Hitler, Stalin and Mao Not Happen?

This is all very relevant to today given the rise to power of what can only be described as Communists in some States in the U.S. and now the mainstream of their politics.

Who would have ever believed that this was possible. But then again, who would have believed the events of COVID were possible. Maybe it is worth watching yet another take on MFP. It took over a year to make and is really good.

It was an honor to collaborate with Academy of Ideas. Their content is incredible. This video has been over a year in the making. I can honestly say I put every ounce of energy I had into this one. After completing this, I am mentally, physically and emotionally exhausted, but...this may be the most important message of our time. I think we can all feel that we are at a very pivotal point. The fate of our world runs along the edge of a knife. If we falter, we may descend into a nightmare. I enjoy exploring positive, enlightening ideas, but it is just as important to explore the dark side as well. Please, if you can, share this video far and wide.

The Money System Has To Be Involved In All This

Personally, I think the widening distribution of income caused by the monetary system and the (partly related) decline in the integrity of our institutions may have something to do with it.

It is not the whole story of course and maybe not even the main actor.

Being Of Sound Mind

I wish there was a conversation at this week’s hearing that went like this: Senator X: “Dr Fauci, do you have a functioning mind or any mind at all”. Dr Fauci: “On the advice of Counsel, I respectively….”

I’m only half joking here. There is a very serious issue here. I think we must demand logic, reason, debate and transparency from all our Institutions. Also, we must have rigorous questionings of these institutions and their actions by the fourth estate. In my view this applies especially to economic institutions, and we are certainly not getting it.

Where was I? Oh, that’s right on Lagarde.

Back To Lagarde

In a keynote speech entitled “Navigating Energy Shocks: Risks and Policy Responses”, delivered at the ECB and Its Watchers Conference in Frankfurt on 25 March 2026, ECB President Christine Lagarde set out how the ECB believed central banks should respond to the Iranian oil shock.

It is one of the clearest official explanations (pun intended) of modern central bank thinking that I have found.

Before discussing interest rates, she stressed that policymakers must first understand “the nature, size and persistence of the shock.” She then acknowledged the obvious limitation of monetary policy itself:

“Monetary policy cannot bring down energy prices. But we must identify when higher energy costs risk spilling over into broad-based inflation – be it through indirect effects or through second-round effects via wages and inflation expectations.”

A One-Off Shock Is Not Yet Continuing Inflation

The higher oil price itself is not described as inflation. Rather, the ECB’s concern is whether the initial increase in energy prices spreads throughout the economy by altering inflation expectations, wage bargaining and firms’ pricing behaviour.

Lagarde immediately strengthened that argument:

“Because the effects of significant price shocks on inflation can be non-linear, we need to work with scenarios and pay close attention to early warning signs that the shock is embedding in broader inflation dynamics.”

She then concluded:

“Small, one-off and short-lived supply shocks can be looked through. But as expected deviations from our inflation target grow larger and more persistent, the case for action becomes stronger.”

They Are Big on Scenarios, Size of Shocks, Blah Blah Blah

Later in the same speech she expanded the point even further by explaining that the appropriate monetary policy response depends not simply on whether the shock is a supply shock, but also on its magnitude and persistence.

There Are Those Three Bears Again

She outlined three different cases. If the shock is “limited in size and short-lived,” the classical response is to look through it. If it produces a larger but temporary overshoot of inflation, a measured policy response may be appropriate.

If the shock becomes sufficiently large and persistent, then a much stronger monetary response is justified. She concluded that the ECB would not act until it had “sufficient information on the size and persistence of the shock and its propagation.”

Ah, Here Is the Central Bank Hymn Book

Piero Cipollone, another member of the ECB Executive Board, expressed almost identical concerns in a later speech. Discussing the ECB’s scenario analysis, he explained that the Bank’s adverse scenario assumed:

“...stronger indirect and second-round effects, as well as greater uncertainty and heightened adverse international spillovers...” The ECB’s severe scenario went further still, assuming: “...an even stronger and more persistent energy price shock...” together with: “...greater uncertainty and even stronger indirect and second-round effects.”

Cipollone then explained why these distinctions mattered:

“The significant difference between the adverse scenario and the severe scenario highlights the importance of the intensity, duration and propagation of the shock as we seek to assess its impact on the inflation outlook.”

Trust Me, I’m a Central Banker

Finally, he described precisely what the ECB would be monitoring:

“We are nevertheless paying attention to possible signs of a de-anchoring of medium to long-term inflation expectations. In particular, we will be looking at the indirect pass-through of higher energy costs to the broader consumption basket prices and possible second-round effects.”

The Fed, the ECB…They’re All the Same

Federal Reserve officials expressed remarkably similar ideas. Governor Lisa Cook warned:

“Nonetheless, even temporary and short-lived shocks could influence inflation over the medium term. Firms may embed these shocks into their pricing decisions, and workers may incorporate them into wage negotiations.”

Likewise, Governor Michelle Bowman argued: “It is appropriate to look through temporarily elevated inflation readings largely due to higher energy prices...”

She then added an important qualification:

“In particular, the more persistent higher oil prices are—or if we start to see broader effects of higher energy prices on PCE inflation—the more likely I will consider shifting my approach to thinking about the balance of risks.”

Wait a Minute. What Happened to All Those Mechanisms.

The June 2026 minutes of the Federal Open Market Committee reveal the same emphasis. They observed:

“More broadly, most foreign central banks emphasized the risks of higher inflation leading to second-round effects and the need to mitigate these risks, despite prospects of weaker output growth, and signaled either policy rate hikes or a slower pace of easing going forward.”

Yet having explained the transmission mechanism so carefully, official central bank publications do not always maintain that distinction.

The ECB’s July 2026 monetary policy statement simply declared: “The energy shock continues to feed into higher prices.” It also observed: “It is becoming more expensive for firms to source inputs, and they therefore expect to put up their selling prices.”

Finally, it concluded:

“While energy price inflation declined in June, its rise since the start of the conflict – and its impact on food, goods and services price inflation – is likely to keep inflation well above target into the first half of 2027.”

It’s a Dog Breakfast of An Analysis

At their most careful, central bankers distinguish between an initial relative price shock and a continuing inflationary process. They repeatedly refer to “second-round effects”, “inflation expectations” and “wage pressures” as the transmission process by which an oil shock supposedly becomes broader inflation.

At other times, however, official publications simply state that higher energy prices are keeping inflation high, without even mentioning those intermediate mechanisms. Whether these later statements are merely shorthand for the more detailed explanation, or whether they reflect a subtly different conception of inflation, is left unexplained.

But There is an Even More Fundamental Problem

Even when central bankers provide their most detailed explanations, they still never explain the actual causal mechanism. How do changing expectations or higher wage demands generate the additional spending necessary to sustain a continuing rise in prices? Naming a “second-round effect” is not the same as explaining how that second round occurs.

That is the question we must now answer.

Take This Logic

The oil price rise slows economy but if it initiates wage pressures and inflation expectations then the Government, through the central bank needs to step in give it another kick in the guts by raising interest rates.

To the ordinary person out there this can seem a bit counterintuitive. They could well ask if the oil price rise slows the economy why then do we get inflation?

Please Explain?

I mean how does it all work?

Why does the same type of oil shock supposedly generate second-round effects on some occasions but not on others? What determines when the tipping point has been reached?

But here is an even more fundamental question. Assume that the magical tipping point occurs, what is the process where the now in play wage pressures and increased inflation expectations lead to actual increased inflation?

How Do I Get Some Of Them Mystical Powers

While we are at it, how does raising interest rates solve everything. Think about it.

An oil price shock causes changes in wage pressures and expectations of inflation and yet raising interest rates which had nothing to do with the increased inflation in the first place is the solution.

Not only that, the great and the good confidently assures us (watch the videos above) that they are ready to act when the signals go green. It seems that they have some mystical power to know when the green light goes on.

They also have the mystical power to know by how much to increase the interest rates which had nothing to do with the increased inflation in the first place.

Shall We Begin At the Beginning

I have mentioned in previous essays how my Treatise took fifteen years partly because I encountered illogical nonsense built on illogical nonsense to the power of about ten layers. The whole “what really causes inflation” is but one example of the layered illogical nonsense.

I will need to move slowly here so we will begin at the beginning.

UTOM. Pronounced “You-TOM”. Well, Are You?

I have described my Unified Theory Of Money (UTOM). It is really the Austrian theory, but I reckon UTOM goes some way to solving some of the fundamental issues with the Austrian theory to call it my own. For the enthusiast out there, UTOM deals with the seeming dilemma of the Evenly Rotating Economy and Money.

Here is the big question: Can you get inflation in a free-market model where money is created by the market and there is no Fractional Reserve Banking?

What Is Inflation? How Do You Measure It?

It is a rate of increase in prices not a one-off rise in the price level. The oil price shock is, in the first instance, a one-off rise in prices. Once that filters through everything then things could settle down. It is only inflationary if prices keep rising.

The measure of inflation is itself problematic. We obviously need to assign weights to each good to get an overall index measure. It is possible that a price shock causes some prices to rise and some to fall. That is, relative prices change as well as the measure of overall prices.

Remember the measure is not just some sort of interesting statistic. It is important because the behaviour of economic agents responds to it. Also contracts and financial market instruments including the stock market itself respond to it.

Money Wasn’t Important for Decades. How Come?

Most economists will know Friedman’s famous comment that “Inflation is always and everywhere a monetary phenomenon”.

Yet the discussion above from Central Bankers doesn’t mention money at all. In fact, we went for decades where money and credit didn’t feature in central bank and mainstream economic thinking at all. Except for the People’s Bank of China.

A Bit Of a Comeback

Recently money does get mentioned a bit in some research papers emanating from the Central Banks. Nearly always in the context of credit bubble talk.

But money is rarely mentioned in the Friedman sense. The discussion still almost always centres around raising interest rates to slow inflation? How do we square that circle with Friedman’s statement? To begin to answer this we need to build up the analysis over a few essays.

Here we start with assuming that money supply is constant. If Friedman is correct, then that has big implications for inflation.

Meet Our Fruit Case Economy

Take a simple economy of 100 each of apples, oranges and pears. For money say there 300 ounces of gold or to give it a modern perspective $300 one-dollar notes.

The prices of our goods will of course depend upon the relative demand and all sorts of factors. I can show that ultimately, prices, costs, and profits, will depend upon consumer preferences and the amount of money in the economy.

There is a certain intuition to this especially the ultimate price of the goods. Anyway, for our purposes here doesn’t really matter what the relative prices are, just that they exist.

An Apple Shock

Say there is an “apple shock”.

The supply of apples is hit hard by perhaps a crop failure. This initially sets off a rise in the relative prices of apples. This cascades into changes to consumer preferences. This in turn affects the demand and supply situation of all goods in the economy.

Basically, there are feedback effects on feedback effects and so on.

It is important to note the change in consumer preferences affects not just the demand for our apples, oranges and pears (and importantly money as well). They also affect the supply dynamics and cost situation of all goods in the economy.

To repeat: changes in consumer preferences affect not just demand but supply through changes in the cost structures of the whole economy. Most economists don’t realise this because they are stuck in either macro world or the Neo-Classical world.

Is Your Brain Already Starting To Hurt Yet

Think of it this way: the number of apples has fallen, and the price of apples has risen.

So far so good. But this change causes us to rethink lots of things. Each of us now adjusts our preferences of how many apples, oranges and pears and dollar bills we want to hold with the new apple situation.

The apple shock has caused us to adjust our preferences for all goods including apples and importantly how much money we want to hold once we have adjusted all of our purchases under the new apple regime.

This is the important point. The apple shock has been transmitted through the entire structure of the economy.

Off We Go To Market

These preference changes are expressed when we ‘go to market’ to make out purchases. That feedback gives information to the suppliers of the apples, oranges, pears and wait for it, money as well.

The suppliers of all the goods change their demand for resources (labour, capital, land) in their next production run. This in turn affects the prices of all those inputs.

With apple prices now higher the apple producers will want to increase production and try and draw resources away other producers. These other producers will be facing a new situation because of the changed demand for their products. The price of all the inputs will therefore be changing.

In some cases, there will be downward pressure in others upward pressure.

But What About the Overall Price Level?

I know what you are probably thinking what about overall prices? Ahh, then we get to money. Read on.

Hopefully you can see how the change in consumer preferences set off by the apple supply shock has affected both the demand and supply (i.e. cost of production) side of all goods in our economy.

But there is no reason whatsoever (so far) for the inflation impulse. None. In the first instance there are less goods in the economy due to the apple supply shock but the same overall money so the price level however defined will have risen.

The Market Reacts

The second-round impact is that there is likely to be more resources devoted to apple production because of the price rise and less resources devoted to the production of oranges and pears (again we will leave money to later).

The costs and price changes driven by the change in consumer preferences has set in train the cascading feedback effects which mean at the end of the day when things settle down to what economist call the new equilibrium, the allocation of resources has changed.

By round two we now have a different mix of goods than before the apple shock. Much will depend upon the nature of the apple shock and whether there is anything that can be done about it by devoting more resources to replacing the lost production (think oil).

Lots Of Complications but Here Is the Important Thing

Exactly where the measured price index ultimately settles is almost beside the point. It may finish above its original level, below it or somewhere in between depending upon how production adjusts and how the index is constructed.

What matters is that once the economy has absorbed the original shock, there is no remaining force causing the price level to keep rising. The one-off shock has worked its way through the system.

Government: Keep Out Of It

By round 2 (assuming all the adjustment has taken place) we will have the resources of the economy being put to producing a different mix of goods directed by the new consumer preferences.

There is no economic reason for a government to interfere with this process. The economy has adjusted to the change in consumer preferences and the reality of the apple supply shock.

You Rarely Hear the Great and the Good Speak In These Terms

Keep all this in mind when I refer to the Allocation of Resources (AOR) which I often do.

AOR is simply what uses land, labour and capital are put to. You know, what job do people go to what they get up in the morning. What uses are machines put to. Indeed, what machines are made. What is land used for. How do all these factors interact with each other.

It is the price mechanism directed by consumer preferences that direct all that activity.

It All Comes Down to the Consumer

Think of how the preferences cause the price and costs changes in apple, oranges and pear economy redirecting resources, after the shock, probably directed to restoring the apple production and less oranges and pears.

It all depends upon the nature of the shock, but the point is that a change in consumer preferences sets in train a series of price and cost signals that cause land, labour and capital to be put to different uses than previously.

Why Would You Want To Interfere?

The question is why on earth would you want to interfere with that adjustment. Also, shouldn’t every policy by the government start with asking what impact that policy will have on consumer preferences, knowing that it will change the AOR. The obvious follow up question is: is it worth doing?

Economists rarely address the AOR issues when they talk in macro terms like changing interest rates and fiscal policy on the ‘economy’. Hopefully you can now see that all these ‘macro’ policies change the AOR and interfere with consumer preferences.

What About Money: Setting the Scene

Now we get to see how money fits into all this.

Start with an economy where money supply is constant. This can be a fiat currency with no printing and no Fractional Reserve Banking or a specie economy, say gold, where supply is fixed.

The important point here for our analysis is that the money supply is fixed.

Important Lessons From a Simple World

Imagine that there is a market place every week where everyone gets one hour to trade their goods. We are deliberately simplifying the world so we can isolate the role of money.

Everyone starts with some combination of apples, oranges, pears and dollars. We all then have a choice to make as to what combination we want to end up with at the end of the hour?

At the end of all this the producers get their new price signals, so they know what to produce for next week’s market and how much labour etc. to demand for their production activities and so on.

Scenario One: Instantaneous Outcomes? Don’t Ask: Think Quantum Entanglement.

All the trades happen in everyone’s first trade once the hour starts. That is, magically the prices are set considering all the consumer preferences and everyone does their trades to get set for the week.

Think of it perhaps as everyone seeing the new prices on their screen then in on their computer their desired outcome and it magically produces the end result.

I know, you are asking how that could happen. Hey maybe AI could know all of our preference scales under all circumstances and work out the prices.

Rabbit Holes

In any event, welcome to one of my Rabbit Holes. There are lots of chapters in my Treatise on the formation of prices, but I ask you to trust me on a few of these perplexing issues in that it doesn’t change the principle I am trying to show here.

As an aside, most economists haven’t really gotten into the formulation of prices issues. They just draw their demand and supply schedules and somehow assume there is a lot of to-ing and fro-ing until equilibrium is reached. In reality, there are numerous preference feedback issues across products into preferences which complicate things. Believe me, the whole thing drove me bananas for a couple of years.

The Point Is?

The point of Scenario 1 is to show that the money goes around once. Everyone is happy with their new allocation of apples, oranges, pears and importantly money after this first magical trade.

For instance, I might start with 10 apples, 5 oranges and 3 pears and 10 dollars. On seeing all the prices, I might now want 5 apples, 7 oranges, 4 pears and 6 dollars. The total volume of goods is unchanged except for the apples shock at the start where say there was previously 100 apples and now there are only say 70 apples following the shock.

Same Money Chasing Fewer Goods

Now remember that there is the same total amount of money. We therefore have the same money chasing fewer total goods than before so the ‘price level’ however you want to define it has risen.

The question is how is it possible that we now get a continued rise in prices? After all the adjustments we have new relative prices, and this causes a production response and so on as described above.

Then we get to the next week, and we have a different supply of goods and a corresponding change in preferences and our ‘one round’ happens again.

The Composition of Prices Has Changed

The composition of prices is different with all the new preferences considered but clearly the ‘price level’ this time might be higher or lower depending upon how you measure it.

This in turn elicits another response. Eventually everything settles down and there are no more forces causing any more change in the composition of production.

Inflation, as defined as a rate of increase in prices, in this world is impossible. Clearly any government that tries to interfere with this process is changing the final AOR. Remembered the unencumbered AOR is reflecting consumer preferences.

Scenario Two: A More Realistic Situation

The trading goes for an hour. Consumers get to trade lots of times in reaction to changing prices and react to the reactions etc. Now they end up with their desired balance of apples, oranges, pears and money at the end of the hour.

Note that in this round there is no change to supply of any goods or money apart from the apple shock at the very start.

Around We Go

Now we have a situation where the total money supply might change hands numerous times. We have the concept of the velocity of money. That is the number of times the money supply circulates in a set time period. In this case it is within the hour.

The question is: can the ‘price level’ however defined now rise?

Say that I sell my apples and buy some oranges and then sell some pears and buy some apples because the prices have changed. I might then decide to sell some oranges and so on.

In the place of the hour my money transactions might be numerous times more than in our scenario one. Multiply this across the whole economy and the money supply has been transferred many times more than previously.

It is like there has been an increase in the money supply. In these circumstances it may well be that there has been a general increase in the price level.

But Can It Continue?

In the next round you would need the velocity to remain at the elevated level to maintain the new higher ‘price level’. It may even be that the price level falls if velocity falls back in the next round.

Remember that in the next round we have a different mix of goods as producers respond to the price signals for the first round.

A Higher Velocity Is Not Enough

Either way, in a general sense you would need the velocity to continue to increase in order for the ‘price level’ to continue to increase.

Suppose for the sake of argument, that changing expectations did temporarily increase velocity. That still doesn’t solve the problem. A permanently higher velocity could support a one-off increase in the price level, but sustained inflation requires the price level to keep rising. That would require velocity itself to continue increasing over time. What is the mechanism for that? Central bankers never explain it.

There We Have It. Friedman Was Correct. This Is Seismic.

Folks do you realise what we have just shown:

1) You need the money supply to increase to get any sort of sustained inflation. This begs the question as to how does raising interest rates control inflation if not through controlling the money supply. Why not just control that directly?

2) Governments attempt to interfere with any price shock is hindering the natural adjustment of the economy to a new reality. It would also hinder the adjustment which might help mitigate the shock itself.

3) There is no reason for inflation targeting. It interferes with the natural working of the market in responding to consumer preferences.

4) Why would we have a fiat money system at all? How does that help in the allocation of resources?

So far, we have assumed money supply was constant. We needed to do that to show that sustained inflation is impossible with a constant money supply. We have also shown that a constant money supply is totally consistent with an efficient AOR as directed by consumer preferences.

What If Money Can Be Created?

You are probably already seeing how creating money out of nothing messes with all this.

For now, however, let us consider a different world. Money can be created, but only at a cost. Welcome to our gold economy.

Go back to Scenarios One and Two. The apple shock did not simply change the relative prices of apples, oranges and pears. It also changed the relative price of money itself.

What is the “price” of money?

It is simply what an ounce of gold, or a dollar, will buy. If money buys more goods than before, its purchasing power has risen. If it buys fewer goods, its purchasing power has fallen.

I’m Shocked. Shocked I Tell You.

We have already seen how difficult it is to define a single “price level” but let us continue using it as shorthand for the general purchasing power of money.

The apple shock may also change people’s desired money balances. Once everyone has adjusted their purchases of apples, oranges and pears, they may decide they now wish to hold either more or less money than before.

That changes everything.

For Every Reaction There Is a Counter Reaction

Suppose people collectively decide they wish to hold more money. Less money is now circulating through the economy. The purchasing power of money rises.

But unlike our constant-money thought experiment, money itself is now a produced good.

If the purchasing power of gold rises sufficiently, producing more gold becomes relatively more attractive, just as higher apple prices encourage additional apple production. Resources begin to move towards gold production, while rising input costs and the other forces discussed in my UTOM framework simultaneously begin working in the opposite direction.

Money is now behaving like every other commodity.

A Glimpse Of What Is To Come

This leads to what I believe is a remarkable conclusion.

If money itself has a genuine cost of production, then even major supply shocks should be incapable of generating sustained inflation. That sounds like an extraordinary claim, and it is. The next essay explains why the economics of commodity money contains its own self-correcting mechanisms.

For now, however, we have established something important. Sustained inflation cannot occur without new money, or the equivalent through continually rising velocity, entering the economy.

That raises a very uncomfortable question.

If that is true, why is raising interest rates the standard cure for inflation?