>> elevated inflation levels were transitory in 2021But… > that was correct?

No, it wasn't correct. By "transitory" the Fed meant "no need to do anything, inflation will go down on its own". It didn't go down on it's own, and the Fed had to act, too little too late, which is now causing prolonged inflation problems.

> It went up, then back down, due to a very unusual (almost unique, thus far) external cause.

The cause wasn't external, neither unusual nor unique, it was the Fed's start of interest rate increases, precisely at the time the inflation trend reversed.

It went down after they hiked rates in late 2022 (which causes a drawdown in money supply). The asset bubble that occurred in 2021 would have been avoided if they hiked rates in response to inflation data then instead of holding rates at near zero. Had they held rates at zero, it's likely the inflation would have continued.

The economist Noah Smith graded the predictions of economists who made public statements once the Biden administration started its large spending programs:

>...In 2021, Krugman tweeted: "I like it and plan to steal it. This report does look like what you'd expect if recent inflation was about transitory disruptions, not stagflation redux".

As Smith pointed out:

>...But in late 2021, inflation spread to become very broad-based. Services inflation was always significant, and took over from goods inflation as the main contributor in 2022.

>The notion that this was just some transient supply-chain disruptions that was only affecting specific products was absolutely central to Team Transitory’s claims in the summer of 2021. And that was incorrect.

>...Team Transitory also called the end of the inflation at least a year and a half too soon. On October 13, 2021 Krugman tweeted "Three month core inflation. Why isn't everyone calling this a victory for team transitory"

>...So they didn’t entirely whiff here. They just greatly overstated their case. And their complacency in 2021 probably fed into the Fed’s decision to delay the start of rate hikes until 2022, which in retrospect looks like a serious mistake.

What did get vindicated was mainstream economics as taught in our textbooks.

As Smith wrote:

>...Mainstream macro’s first victory was in predicting that the inflation would happen in the first place. In February 2021, Olivier Blanchard used a very simple “output gap” model to predict that Biden’s Covid relief bill would raise demand by enough to show up in the inflation numbers. His prediction came true. He didn’t get everything right — he thought wages would rise more than consumer prices, and he neglected the lagged effects of Trump’s Covid relief packages and Fed lending programs. But his standard simple mainstream model got the basic prediction right when most people made the opposite prediction, and this deserves recognition.

>More importantly, mainstream macro appears to have gotten policy right.

https://www.noahpinion.blog/p/grading-the-economic-schools-o...

If a bank issued you a loan for $100M, that money is effectively created out of thin air. If you then use that to buy a bunch of properties, you are increasing the demand. If others are doing this as well, prices will go up as people bid against each other for the limited supply of properties. This is inflation, because the new demand is directly caused by the creation of new money.

Yeah assuming money supply is flat or near flat, supply and demand will influence prices in one market or another in relation to the market as a whole, or you may have temporary periods of inflation followed by periods of deflation as we saw in the 1800s.

You can note this in the buying power of the USD during the 1800s: https://www.officialdata.org/us/inflation/1800?amount=1