Inflation comes in three forms. The first is produced by rampant demand that is driving prices upward. Raising rates can have an impact on this, with a very long lag involved because so many mortgages are fixed rate. The policy hits those on low incomes and who are younger the most as they are most likely to borrow. It is a blunt and regressive economic instrument that massively favours the well off.
The second cause is supply chain blockages, creating a supply shortage, pushing inflation up as prices rise in response. These problems are solved by sorting out the supply chain blockage, and not by raising rates, which may well exacerbate the supply chain problem by reducing investment.
Third, inflation is caused by exchange rate shocks, all of which in recent years have been domestically generated, largely around Brexit. The solution here is to get the politics right, and not increase rates, which never solves such issues.
The world’s leading exponent of Modern Monetary Theory, the Explainer To The Peons Of QE, fails to note what both MMT and QE say about a fourth possible cause of inflation, an expansion of the money supply.
It’s simply ludicrous. He tells us that government can just print money. Until inflation turns up, when the answer is MOAR TAX. Then in his explanation of why inflation might occur he drops the idea that MMT without MOAR TAX could possibly be a cause.
So where is the rampant demand, which is the only sort of inflation increasing interest rates can save us from going to come from?
Changes in V can produce inflation from an entirely static base money supply…..changes in interest rates can cause changes in V….