Shostak makes the crucial distinction between monetary inflation and a general increase in overall prices. Higher overall prices are a result of the real inflation, an increase in the money supply. It is the increase in the money supply that causes higher prices. The newly created money is worked through the economy as those who have received the new money spend it. Those who receive the spending happily see their monetary incomes rise and increase their spending as well. In like fashion, the new money matriculates through the economy along with increased spending. As people spend more, the demand for goods rises, which in turn puts upward pressure on the prices of those goods. Hence, higher overall prices is the result of a process set in motion by an increase in the money supply.
Shostak points out that because of the serious increase in the money supply in 2008, prices have begun to noticeably increase. Unhappily Shostak thinks prices will get worse before they get better. He concludes rather matter-of-factly:
Since September last year, the growth momentum of the US consumer price index (CPI) has displayed visible strengthening.
We suggest that the Fed's massive monetary pumping during 2008 to September 2009 is the key factor behind the strengthening in price inflation.
Based on past monetary pumping, we expect the growth momentum of the CPI to strengthen further.