Scholastic Theology of Inflation Watch
Scholastic econotheologians say inflation can arise from no previous direct cause. But c`an inflation arise ex nihilo? Modeled Behavior say no:
Immaculate Inflation « Modeled Behavior: "We can take a step back and interpret these events as saying liquidity demand is being satiated. Or, we can take a micro perspective and say that the demand for goods and services in these markets is increasing. Either way we look at it, however, demand driven inflation should be drive a rise in production. In an economy with little unemployment we would expect this to bid up wages as employers competed for scarce labor. The result would simply be higher prices and wages and a distortion of long term contracts like mortgages.
However, in an economy with high unemployment we should expect some of this to result in an increase in hiring. Thus I see when I see rents rising, I think that means that construction employment will rise. When I see new car prices rising I think that means manufacturing employment will rise.... [B]y looking at a the economy on a market by market basis we should be able to tell which is which. This is one reason why inflation driven by gasoline prices is “bad.” It almost certainly represents an increase in the price of a commodity – oil and a reduction in the supply of gasoline. This means that we expect contraction in the gasoline market. In addition through income effects we should expect a contract in the demand in other individual markets.
When inflation is coming through the commodity markets it means that either the commodity is in short supply generally or that it is being pulled away from the US market by demand elsewhere. In either case the result is less real resources available for US households and firms.
However, when inflation is coming through the final goods market it means that real resources are being pulled towards US households and firms. That implies both that US households and firms are trading out of cash and into real goods and that the net effect in each individual market will be an increase in output.
