Dumb Question about Inflation

[Alcibiades]

With the caveat that I’m far from an expert on macroeconomics:

As I understand it, high levels of inflation are basically an issue of supply and demand. They occur when supply cannot keep up with demand; this can be a result of demand being stimulated, or of supply being restricted, or of both. The current inflation is due to ‘pent-up’ demand from the pandemic being released, so to speak, at the same time as global supply chain issues and shortages. On the flip side, you can get a deflationary spiral when consumer confidence collapses, most notoriously as in the Great Depression, though this is very rare, but when it does happen, often far more catastrophic than high levels of inflation.

This is why raising interest rates is the main tool available to central bankers to control inflation; it reduces demand by encouraging people to save and disincentivising them from borrowing, leading to them being less willing and able to spend.

Ultimately, this does all link in with the money supply; an increase in demand for instance, can often be seen as the money supply increasing e.g. people being paid more or receiving government stimulus.