Reply #6: There is no single cause. [View All]

Monetarists claim it is simply the fact that the money supply has grown too large. So, with a big pool of available money but a no bigger pool of goods and services you get inflation.

Other conservative economists claim it occurs when wage rates outstrip productivity gains (wage push inflation). That leads to higher costs of production which is then passed on to the workers who are getting the higher wages. Others also claim that when unemployment falls below a certain level, inflation is inevitable (Phillip's Curve) due to wage pressures.

Another common cause is the shortage of a key commodity. Say oil. Since there is no readily available substitute, prices must rise to balance supply and demand. The cost increase is felt across the economy.

One more cause is the loss of faith in the currency. This can happen for a number of reasons: war, tyranny, fiscal mismanagement, etc.