How to Get Inflation?
Mainly, inflation comes from excess money supply growth. There is too much money in the system chasing too few goods and services.
Nominal GDP = M x V = P x T
- M = quantity of money
- V = velocity of circulation of money
- P = level of prices
- T = number of transactions carried out using money
If M x V > Potential GDP, then the excess is inflation.
Below is a good explanation by Frank Jurs. You may also like “Where Does Inflation Come From?” and “U.S. Core Inflation Expected Over the Next 21 Months.”
In Japan, the nominal interest rate has been close to zero for a very long time and the inflation rate is not increasing. A solution to low inflation is to increase the nominal interest rate.
