Inflation is the decline of purchasing power of a given currency over time.
I think everyone would agree on the definition of inflation as per above, but views on what causes it tend to differ quite a lot sometimes.
For example, some people argue that the current inflation rate is mainly caused by the monetary and fiscal policies implemented over the last years, central banks printed too much money. The problem with this argument is, however, that the correlation between money supply and CPI is hard to prove. Japan is a prime example of this, its money supply has increased enormously over the last decades and not only hasn't it experienced inflation, it's even been struggling with deflation for more than two decades. US and Europe too have increased significantly their money supply over the last decade and neither of them experienced high and persistent inflation.
It's true that, in some cases, money printing causes inflation, but the increase in prices of goods and services is not a direct effect of money printing. In fact, inflation only occurs if the new money increases demand to the point that supply can't keep up.
Inflation can be caused by many factors (e.g. cost-push inflation, demand-pull inflation, self-fulfilling inflation expectations and Phillips curve). And depending on what causes inflation, central banks may or may not be able to implement a proper and effective policy in response to it. If inflation is demand driven, then hiking interest rates is the solution, but if supply chain issues and the statistics being messed up by the pandemic are the main causes of inflation, hiking interest rates will sure lower inflation but it will also kill demand, which would be like curing the disease by killing the patient.
What do you guys think is causing the current level of inflation? And most importantly, why do you think that?
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