Inflation rate is an important indicator to measure the change of price level in the overall economy. Its change is influenced by many factors, among which money supply and monetary policy are the important factors to determine the inflation rate. The following will discuss the relationship between inflation rate, money supply growth rate and monetary policy from short-term and long-term aspects respectively.

In the short term, the inflation rate is directly related to the growth rate of money supply. When the money supply increases, the amount of money in circulation increases and the purchasing power increases, which may lead to price increases. Therefore, the inflation rate usually rises with the increase of money supply growth rate. This relationship can explain why the inflation rate usually rises during economic prosperity, because the growth rate of money supply tends to increase at this time.

However, in the long run, the relationship between inflation rate and money supply growth rate becomes more complicated. This is mainly because in the long run, economic structure, production efficiency, supply and demand and other factors will also affect the inflation rate.

For example, if the production efficiency is improved, the price level may drop; If demand exceeds supply, the price level may rise. In addition, long-term monetary policy adjustment will also have an impact on the inflation rate. For example, the central bank can control the inflation rate by adjusting interest rates and money supply.

In addition, it should be noted that money supply is not directly equivalent to inflation. The increase of money supply will not necessarily lead to inflation, because the speed of money circulation and the distribution of money will also affect the price level. Therefore, monetary policy makers need to comprehensively consider various factors to formulate appropriate monetary policies in order to achieve a stable price level.

In short, in the short term, the inflation rate is positively related to the growth rate of money supply; In the long run, this relationship will become complicated and affected by many factors. Therefore, when formulating monetary policy, the central bank needs to comprehensively consider various factors to control the inflation rate in order to achieve economic stability and development.