Pretty good article describing the theories of inflation.
The inflation were are experiencing now is a potent witches brew of both varieties described here:
revisionguru.co.uk
Demand pull inflation: primary causes are the huge increases in Asian aggregate demand for crude commodities that are in short supply. This crude goods inflation is both demand and supply driven, and now has a strong and dangerous speculative (even hoarding) component (witness record spec long "store of value, protection against declining USD" positions in various key commodities).
Demand and speculation is encouraged and fueled by easy money and mispriced credit. This is the big carry trade of the day, that any monkey could figure out now, (except Fed officials like Bernanke and Greenspan): borrow for next to nothing in a declining currency, and speculate on some "thing", including crude oil, copper, food, and a multitude of short supply input goods.
Since price inflation in crude goods is now so high, it is also feeding through (passed through)to intermediate goods in the form of cost push inflation. The cause of this current cost push inflation is explosively rising input costs. So there are three factors driving the demand pull inflation in crude goods: a vicious strain of supply shortages (such as quarter century lows in grain and energy stocks and inventories, rapidly depleting metal stocks and massive transportation bottlenecks), strong Asian demand, and speculation, That is leading to rising input costs, which in turn causes an additional jolt of cost push inflation down the intermediate and finished goods spectrum. Vicious stuff. |
