Reasons need to be nuanced. Inflation is not only due to wars and pandemics, but even more to the fact that over many years an enormous increase in the money supply has been created. The high debts have created a huge distortion.

 When you follow the media reporting on the sharply increasing inflation in the world and in Sweden, you get the impression that it is a phenomenon that only occurs, such as natural disasters. Now they also call it Putin prices with reference to the ongoing war in Ukraine. But the explanation is not that simple.

 There is a need for greater transparency and honesty when it comes to reporting on why inflation and even deflation occur and what are the reasons behind it. These problems are largely of our own making and the institutions we have created to manage the monetary system.

To quote the Nobel laureate in economics, Milton Friedman: Inflation is always and everywhere a monetary phenomenon, insofar as inflation is and can only be created by a greater increase in the quantity of money relative to production.

 In order to understand inflation, one must understand how money is created. The majority of all money in existence is created by the banking system and only a small portion is created by central banks.

 Money is created when someone takes out a loan. Money is created out of debt. Banks are often described as money brokers, that is, they take in savings and then lend them out. This is not true. Banks create money through a multiplier effect. The explanation is that regular transaction accounts are actually equivalent to money - they are fully money.

 If at the same time the bank created a loan for a borrower with the help of this money, that money is also immediately available to the borrower. That is to say, the amount of money, which today is mostly electronic and not notes and coins, has increased. The bank has created new money that previously did not exist. The central bank is responsible for the control mechanism of this system.

 You control how much loan and thus how much money is created through your policy interest rate. If the central bank has a high policy rate, it becomes expensive to borrow and fewer loans are issued, that is, less money is created. Therefore, it is the central banks together with the banks that determine how much money there is in circulation. You control, so to speak, the amount of money in circulation, the money supply.

 But not only the money supply affects what we call inflation today. Inflation is measured in the consumer price index (CPI). This measure is based on the changes in the prices of goods and services in a preselected basket. In Sweden, Statistics Sweden (SCB) determines the contents of the basket. Some things are not included in the CPI, for example real estate prices or prices of securities.

 If we return to Friedman's quote, inflation is affected by two things, money supply and production. If the money supply increases or if production decreases, inflation will occur. In the media, you usually only highlight one side, i.e. decreasing production due to various reasons mentioned above, but you very rarely highlight the other side - increase in the money supply, i.e. what central banks and banks control.

 Since 1971, when the gold standard was dismantled, the money supply has been controlled via monetary policy according to the mandates given by the political system to central banks. In Sweden, the Riksbank must keep the CPI at 2 %. In recent years, we have had to learn new concepts such as quantitative easing (QE) and negative interest rates. These concepts have one thing in common. There are active attempts by the institutions to increase the amount of money in society.

The idea is that more money will fuel growth and prevent recession from occurring. This thought is good because low growth and recession bring with it undesirable things such as unemployment, exclusion and poverty. The problem is that this medicine can be overdosed and I would say that it has been severely overdosed.

 Since the 2008 financial crisis, there has been an explosive increase in the money supply via QE and negative interest rates. As previously mentioned, money is created via debt, i.e. from loans. If you want to create more money, debts must increase. That debts increase does not have to be a problem if the increase in debts occurs at the same level as growth.

 In recent years, this has not been the case. Debt has increased much faster than growth. The problem then is that there is more money chasing fewer goods. This is inflation.

 One can ask why, since the financial crisis in 2008 until recently, we have not seen any inflation measured in CPI?

 The reason is that new money is not only used to buy goods and services according to Statistics Sweden's shopping basket. The new money is also used to buy real estate and securities on the stock exchange and financial market. One should ask who get the new money and for what purpose. To borrow, you must be creditworthy. The more creditworthy you are, the easier you can borrow. When you borrow, new money is created. It is easy to see that it is the well-off who have access to new money and these use the money to invest in real estate and shares, among other things. The new money has mainly gone to these assets and has therefore driven up their value (inflated prices in thoose areas.).

 Money has to a lesser extent found its way into the shopping basket and wages, so despite the enormous amount of money created, the CPI has not been significantly affected until 2022. On the contrary, it has been difficult to have an effect on the CPI and difficult to get good growth started. This is an unfair process that favors the creditworthy who have gotten richer and richer in real estate and stocks and that has clearly disadvantaged wage earners, senior citizens and the poor.

 This is also clearly seen in the measure of inequality that exists, the so-called Gini coefficient. The recent inflation is due to two things. Partly the reduced production due to war and pandemic, but even more so because for many years there has been an enormous increase in the amount of money.

 This money is available and when investors see risks of falling real estate prices and bad upside in the stock market, a little more money will move from real estate and the stock market to physical assets such as goods, productive land, etc. This then drives up prices of goods in the CPI basket . It is enough for a small part of the money supply to be moved from stocks and real estate to the physical market for the CPI to take off.

 Central banks are now in a difficult situation. If inflation is allowed to be, it can derail into a price and wage spiral, and in the worst case, society can end up in a hyperinflation - like in 1930s Germany.

 But if you try to fight inflation through sharply increased interest rates, it becomes problematic when the indebtedness is so high. Interest costs would greatly reduce the consumption space of people, which affects the companies that have to reduce the workforce, leading to unemployment. A deflationary spiral can occur which in the worst case can resemble the Great Depression.

 To a large extent, inflation is a problem caused by the politically appointed institutions which have certainly tried with good intentions to prevent recessions, but instead built up a huge distortion in the monetary system with high debts, large redistribution from poor to rich and which also now entails that we risk having to go through a significantly deeper recession in the future.

 We need to talk much more about this in the future.