inflationsmekanism

Inflationsmekanismen, sometimes written inflationsmekanism, describes the set of processes by which a general rise in price levels occurs in an economy. It encompasses interactions among money supply and credit, aggregate demand, production costs, price-setting behavior, and inflation expectations.

The main channels are demand-pull, cost-push, and built-in inflation. Demand-pull arises when aggregate demand exceeds the economy’s capacity to produce goods and services. Cost-push occurs when costs (wages, inputs) rise, squeezing margins and pushing prices higher. Built-in inflation reflects adaptive expectations and wage-price spirals whereby higher wages lead to higher prices, and vice versa.

The monetary transmission channel is central: money supply growth, interest rates, and credit conditions influence demand and asset prices, which feed into prices. Expectations play a crucial role; credible policy can anchor inflation expectations, reducing the persistence of inflation. Over the medium term, the relationship between inflation and unemployment is described by the expectations-augmented Phillips curve; over the long run, inflation is often modeled as driven by money growth in many frameworks.

Measurement and variation: inflation is typically measured by indices such as the consumer price index (CPI) or the GDP deflator. The mechanism can be transitory or persistent and can differ across goods, sectors, and countries due to supply shocks, productivity changes, and exchange rate movements.

Policy relevance: understanding the inflationsmekanismen helps central banks set credible inflation targets, communicate effectively, and apply policy tools (interest rate adjustments, asset purchases, macroprudential measures) to control price levels while supporting employment and growth. Structural reforms can also alleviate supply-side constraints that feed inflation.