Inflation is the increase in the general prices in an economy. And yes, it has to do with supply-demand dinamics and also with monetary mass.
What you refer to as 'supply and demand dynamics' may cause consumers to switch from one type of good to another, thus increasing the demand in one market, and contracting the demand in another one, and causing a price change.
This, however, is not inflation, it's a change in the real economy (e.g., it has to do with production and consumption, not with nominal change in prices).
If the cost of the energy increase due to(many reasons can be queted here), affecting the prices of virtually all the goods that use energy in his production, wich is not a small share of the total products. This will increase the prices mostly all over the board. I could start showing you more real economy changes like a hard drought who will increasy the price of many food products, etc.
This will sure increase mostly (if not all) the prices in the economy. This is called inflation.
So, yes, inflation can be produced by changes in real economy and not only due to the expansion of the monetary mass.
Last edited by Zero, the Magi. at 10/24/2009 9:58:58 PM