by Mihai Macovei
Mises.org
For central bankers and mainstream analysts the recent inflation outburst is only a transitory phenomenon which has nothing or very little to do with the massive monetary and fiscal stimuli unleashed during the pandemic. Although the Fed has recently conceded that price pressures are persisting longer than expected, the surge of inflation is allegedly due to supply bottlenecks caused by the pandemic. This superficial diagnosis serves as a convenient excuse for politicians to keep in place damaging growth stimuli and draconian public health measures.
Inflation Is Not Driven by a Shortage of Supply
Mainstream economists define inflation as an increase in consumer prices which occurs when the growth of money supply outpaces economic growth.1 In other words, too much money is chasing too few goods. If the recent surge in inflation were driven by a shortage of goods rather than an increase in the money supply, then aggregate output would be shrinking.