The inflation rate is indeterminate. That means that it is not directly affected by any of the variables we normally include in our models. It can be whatever people think it will be. (The money supply will passively accommodate whatever the inflation rate turns out to be.)

Here, in fact, is a pure case of self-fulfilling expectations. If people expect a certain inflation rate, that’s what they get, because they set prices and wage rates to match their expectations. Monetary policy might even play an indirect role in fixing the inflation rate. If people think monetary policy works, and they see signs of a tight monetary policy, they may reduce their inflation expectations. This, in turn, may reduce actual inflation.

But styles in economics change. Sometimes people think that budget deficits have a big influence on inflation; at those times, thinking it may make it so.

Thus my prediction is that the best inflation model will change over time. Whatever theory is currently fashionable, especially in the popular press, will work. We won’t find any theory of inflation that works reliably until we can all agree on a macroeconomic model explaining such things as money and business cycles.