The cure for inflation is more inflation?

|

There may be some truth to this.  Along with almost everything else, the causes of, and potential solutions to, the U.S. inflation problem, are being politicized.  Depending on who you ask, our current inflation problem is caused by; Covid-19, supply-chain disruptions, wages, corporate greed, the American Rescue plan, and the war in Ukraine, to mention some of the leading, purported culprits.  Taking the most fundamental view, we simply have too much money chasing too few goods and services. 

Consequently, bringing supply and demand into balance is, at the end of the day, the key to bringing inflation down to manageable levels.  This is likely to entail some combination of demand destruction and supply increases.  Demand destruction, this is where the Fed comes in, it can be accomplished through higher prices, more expensive borrowing costs and a reduction in the money supply. To the extent that inflation contributes to higher prices, more inflation can reduce demand and, over time, contribute to a waning in upward price pressures.  Increasing supply is complicated and occurs through the efforts of a wide range of participants, not including the Fed, across broad swaths of the economy.  A more rational approach to regulation might help too.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

Subscribe to Sigma Investment Counselors Blog by Email.