This will be very short and pretty simple; about a one minute read…
Technically, inflation is an increase in the money supply, especially if it’s in a larger proportion than the increase in population.
But for most of us, we think of inflation simply as higher prices.
The US debt is over $34.6 Trillion as I write this, because of reckless government spending, flooding the economy with borrowed dollars.
The government tries to fight inflation by raising interest rates. But like the drag of back emf in an electric motor, the net effect is complicated. Raising interest rates can increase the rise in prices, even while creating economic slowdown. Higher interest rates put pressure on all businesses to raise their prices. Cash businesses, like McDonalds, can quickly raise their prices as their costs go up. Companies that have trouble raising prices without seriously hurting demand aren’t so lucky.
With higher interest rates causing higher prices, employees demand higher wages, which, again, has to be passed on to consumers by raising prices on products. It’s a vicious circle.
If an administration wants to bring inflation down, raising interest rates doesn’t really help that much, especially if they’re continuing to increase the money supply and also making it more expensive to increase drilling for oil and natural gas and the refining and processing thereof.
Then there’s the effect of higher coal, oil and natural gas prices. The price of oil affects the price of gas, diesel, airplane fuel, blacktop, and thousands of products that use some form of oil in the manufacturing process.
So the price of oil affects everyone of us, and is one of the biggest underlying forces that can cause prices of just about everything to go up.
If a government wants to lower ‘inflation’ (understood as higher prices), it needs to stop spending more than it takes in, and it needs to stop making energy and fuel more expensive. It’s so simple that it would take a PhD or a beaurocrat to misunderstand it.