Inflation has nothing to do with the rise or fall of the interest rate level. The interest rate level will not change due to the rise or fall of prices. The interest rate is determined by the supply of money.

The amount of money circulating in the market increases, supply exceeds demand, prices rise, that is, the purchasing power of money decreases, which leads to a decrease in loan interest rates. In this way, inflation and loan interest rates interact with each other, allowing inflation to continue to rise, and prices reach a certain level. When the level reaches a certain level, the central bank will start to raise deposit interest rates to combat inflation. However, general deposit interest rates cannot beat inflation.

Inflation is the devaluation of a country's currency that causes rising prices. The essential difference between inflation and general price increases: General price increases refer to a temporary, partial, and reversible increase in prices of certain commodities due to an imbalance in supply and demand, and will not cause currency depreciation; inflation can cause a country's currency to depreciate. The prices of major domestic commodities in the country have continued, widespread and irreversible increases. The direct cause of inflation is that the amount of currency in circulation in a country is greater than the total effective economic aggregate of the country. The direct reason why the amount of currency in circulation in a country is greater than the country's effective economic aggregate is that the growth rate of a country's base currency issuance is higher than the growth rate of the country's effective economic aggregate.

The reasons why a country’s base currency issuance growth rate is higher than the country’s effective economic aggregate growth rate include both monetary policy and non-monetary policy. Monetary policies include loose monetary policies and the use of interest rates and exchange rates to regulate the economy; non-monetary policies include indirect investment and financing-led financial systems causing loan expansion, long-term excessive export surpluses in international trade, excessive foreign exchange reserves, speculation, monopoly, corruption and waste Raising social transaction costs reduces the quality of economic development, causes imbalances in the economic structure, and misleads consumption expectations. Therefore, inflation is not only a monetary phenomenon, but real economic bubbles are also an important cause of inflation. Regardless of whether it is monetary policy or non-monetary policy, monetary phenomena or real economic bubbles, the fundamental cause of inflation is that the GDP growth pattern results in excessive GDP moisture, excessive ineffective economic aggregate, and a serious lack of effective supply, resulting in reduced monetary efficiency.

Cause Analysis

Cause

Banknotes are mandatory issuance and use by countries or regions. Under the conditions of currency circulation, if the issuance of banknotes exceeds the circulation The amount actually needed in the currency and the excess continues to circulate in circulation, which will cause inflation.

The direct cause of inflation is the increase in national currency issuance. The government usually issues additional currency for reasons such as covering fiscal deficits, stimulating economic growth (such as the 2008 4 trillion stimulus plan), or balancing the exchange rate (such as China's imported inflation).

Inflation may cause social wealth to be transferred to the wealthy class, but under normal circumstances inflation is an unavoidable consequence of the measures taken by the state to effectively affect the macroeconomic operation. Many economists believe that moderate and benign inflation is beneficial to economic development.

Inflation is a complex economic phenomenon with various causes.

(1) Direct cause. Regardless of the type of inflation, there is only one direct cause, which is excessive money supply. Using too much money supply to correspond to a given amount of goods and services will inevitably lead to currency depreciation, rising prices, and inflation.

(2) Deep reasons.