“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” ~ Milton Friedman.
Inflation hurts all Americans and represents a crushing blow to the pocketbooks of working families and seniors living on a fixed income.
Inflation, in its most basic sense, is a lost of purchasing power. For example, a dollar held at the start of calendar year 2021 is now worth only 88.3 cents, according to .
Unfortunately, inflation seems likely to remain higher for longer than policymakers expected, and the Federal Reserve will therefore need to maintain a tighter policy stance of raising federal fund rate and quantitative tightening for an extended period of time, according to Franklin Templeton Fixed Income CIO Sonal Desai.
Consumer inflation remains at record highs across major developed economies: in September it ran at 8.2% year-over-year (Y/Y) in the United States, 10% Y/Y in the eurozone and 9.9% Y/Y in the United Kingdom (in August).1
These numbers represent inflation rates not seen in four decades. Many incorrectly assume the causes are the energy shock and supply chain disruptions which have played an important global role.
Additionally, the United States experienced a massive fiscal budget expansion during the pandemic, and fiscal stimulus continues to flow in the form of subsidies and debt forgiveness programs.
Excess demand therefore is a major inflation driver; in September, even as lower energy prices brought headline inflation down, core inflation (excluding food and energy) accelerated above expectations to 6.6%, the highest in 40 years.
Core inflation has averaged 6.2% so far this year and shows no signs of coming down—to the contrary, it’s rising. The last time it sat below 2% was in March last year.
Meanwhile, aggregate demand remains resilient and the labor market remains as tight as it’s ever been. Excess demand is an important inflation driver—as the Fed has belatedly recognized. So, the Fed can’t stop and won’t stop hiking rates anytime soon—Americans should expect that the federal funds rate could easily go above 5%.
Simply, inflation is a monetary phenomenon. It is a result of too much money, of a more rapid increase in the quantity of money than an output. “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output,” states economist Milton Friedman.
Moreover, it’s important to recognize that governments control the quantity of money. So that as a result, inflation in the United States is made and produced in Washington and nowhere else.
It is a byproduct excessive printing of green pieces of paper we call the U.S. dollar (USD) that increases the money supply, funds uncontrolled fiscal spending and devalues the fiat currency.
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