Expansion of the Money Supply
A third cause of inflation is an over-expansion of the money supply. The money supply is not just cash, but also credit, loans and mortgages. When loans are cheap, then there will be too much money chasing too few goods, creating inflation. The prices of just about everything will increase, even though neither demand nor supply has changed.
Expansion of the money supply was another cause for inflation in housing prices in 2005-2006. Deregulation allowed banks to push mortgages onto everyone. When people could borrow for virtually nothing, and needed no money down, it made no sense to rent. With low interest rates, homeowners used their homes as ATM machines, spending their equity on TVs, cars...and more houses. However, inflation was restricted to housing prices. The price of everything else was subdued, since China kept its currency, the yuan, pegged below the dollar. This artificially made prices of their exports to the U.S. low.
When the money supply increases, it lowers the value of the dollar. When the dollar declines relative to the value of foreign currencies, the prices of imports rise, also creating cost-push inflation. That's why China pegs the yuan to always be lower than the dollar, which has been declining since 2002.
Causes of Economic Inflation