As long as the Central Banks can 'make it up' as they go along we will experience inflation¹. Inflation eats away at the savings of the producing class, forces business to increase profits at the rate of inflation merely to break even, and privileges the debtor over the debtholder.
When a Central Bank greatly eases monetary policy, i.e., injects a whole bunch of money into the economy, as the Federal Reserve System has been doing since 1995'ish the result is what Jerome diaried and various other ETers have remarked in their turn.
Money is, among other things, a commodity. And like any other commodity as the supply grows the price must move to reflect that growth. Money is also a means of exchange². And as such the increase in money without a concurrent increase in goods/services produced requires those goods/services to be bid for with ever greater amounts of money.
¹ My point is narrow here. Yes, inflation is not merely the increase in money supply.
² And where else but EuroTribune can one read breath-taking breakthrough analysis like this! ;-)
Although they have several clubs in their golf bag, (such as reserve requirements) Central Banks only use one - that of interest rates, which are of dubious use.
IMHO raising interest rates actually CAUSES retail price inflation (although it DOES eventually choke off asset price inflation) by increasing business costs.
We are constantly assailed by the financial press drumbeat of the "danger" of a wage/ price inflationary spiral (which IMHO ended with the outsourcing to China etc of manufacturing industries and the "working class"): I can't see how increasing business financing costs is qualitatively different to raising labour costs.... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
