> Inflation comes from the monetary supply
Not al all in this case. This is all caused by lower physical supply of oil, gas, diesel and fertilizer from the Iran War. Tightening the money supply will not fix this.
Not al all in this case. This is all caused by lower physical supply of oil, gas, diesel and fertilizer from the Iran War. Tightening the money supply will not fix this.
Thing one, low interest rates result in higher availability of money, causing prices to go up due to increased monetary supply.
Thing two, scarcity of a resource (diesel) causes price of that resource to go up. The resource happens to run the backbone of our economy, so most other prices go up as a result.
These are not the same, as the first is the weakening of the currency against some theoretical static "value", and the second involves the currency keeping its same "value", and instead it is the goods themselves which require more of that value to be produced/sold.
The end result (prices up across the board) is the same but the mechanism is very different.
Structurally it's useful to distinguish the two, in my opinion.
Reducing money supply will reduce the amount of money available to spend on oil, gas, and fertilizer, thus reducing the demand of those things to match the lowered supply.
People and businesses need to buy gas and oil. It is not discretionary spending. They also need to buy food, and food prices are not higher because of the money supply, nor because people are buying more food, they are higher because oil prices are higher.
Also, all that lowered spending you cited will mean closed businesses and economic collapse. Say goodbye to AI as well.
You cannot control inflation caused by a supply shock by rising interest rates.
Not all of it is non-discretionary - as in people die or get hurt if it doesn't happen. Definitely not in developed countries. I've already described what "bare minimum" use looks like, and rich countries are nowhere near that.
> Also, all that lowered spending you cited will mean closed businesses and economic collapse
That is correct. It does, however, "fix" inflation. When more people are poorer, they have less money to spend.
> You cannot control inflation caused by a supply shock by rising interest rates.
Supply shocks can always be dealt with by destroying demand. This may result in a degraded quality of life. But it will fix inflation.