Inflation 1

There are 2 necessary conditions of inflation: excess credit and insufficient capacity. The former, combined with structural supply bottlenecks to increased investment (project obstacles, insufficient skills) in conditions of deficient aggregate demand, creates asset bubbles. The latter, which sees cyclical short-term bottlenecks to increased inventory production, combined with strong growth in aggregate demand, creates wage and goods price inflation. At root is lack of investment, and inflation is the early-stage recovery period of excess savings over investment, of which central bank policy is the price-taker.