High deficits by central banks cause high inflation

While inflation and deficits are not the same, they are related. Deficits—when a government spends more than it makes—can cause inflation in various ways. One such way is by the privatization of the government's debt. If a central bank raises interest rates to fund the debt undertaken by a government, it can price out competitors in a given marketplace from getting into the marketplace or expanding their production in that marketplace. This, according to Federal Reserve Bank of Minneapolis Monetary Advisor Preston J. Miller, can lead to inflation. If the same amount of money is competing for fewer products, the cost of those products will go up.^[1] In addition, the prices don't even have to rise, but the mere assumption or belief that prices will rise can also cause inflation.^[2] In Latin America, countries that have high inflation have three things in common. Firstly, they had incredibly high deficits. Those deficits were funded by the central bank and therefore caused more money to go into circulation, and the governments refused to raise taxes to finance the deficits. Lastly, taxes don't increase when the price of goods increases, causing high inflation.^[3] Safe monetary policies and deficit spending can be used together to prevent or slow inflation. However, without that, inflation will rise if government deficits rise.