RE:RE:Excess Demand Yes, inflation was caused by money chasing too few goods.
Inflation is related to M2 money supply which increased by approximately 40% from the onset of Covid. The economy did not produce 40% more goods so this excess has to be explained by inflation.
In general,
M2*V = P*Y
M2= money supply
V = velocity of money
P= price level (gdp deflator)
Y= real gdp
P*Y = nominal gdp
When the money supply goes up (M2) then nominal gdp (rhs of equation) follows with a 12-24 month lag.
In the US, M2 is contracting at a rate by about 5%/year which is very much disinflationary. Inflation is likely to drop below 2% by 2024 as Monetary Policy and QT works its way into the economy.
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