Inflation and interest rates

From July 2007 to July 2008, the Fed and the bankers curve was busy contracting.  Yet inflation only shot up in 2008 in spite of six months of lower rates along the curve.  Why?  Because the real economy had already contracted, the bankers were late to the game and the high energy spike in 2008 simply reflected the shortages seen in 2007.  Being late to the game, bankers had gotten out of phase.

Lower rates would have caused inflation earlier if the banking network had kept pace. The economy is much better at adapting then bankers realize. A way to sum up the difference is that the real economy can see shortages in queue size growth, they do not wait for price signals, they just buy more of the short good on a longer inventory cycle. Then they adjust money variances, later.

The ability to cause price spikes comes from the ratio problem, price is a ratio of inventory variance to money variance. With money on the bottom, a sudden stabilization of money variances can cause a price spike.