How does inflation happen?

Question

and why does oil prices go down because the US dollor improve

Answer 1

The government has these fancy printing presses, and they can print all the money they want.  Actually, most of the increase in the money supply is created electronically, but it's the same principle.  Increasing the money supply reduces the value of each dollar, as if they were collectively backed by a constant amount of gold or silver.  Of course, they are not backed by anything, but people pretend they are.

When the value of the US Dollar improves for whatever reason, rational or not, prices go down.

Grandpa

Answer 2

In the long term  it is caused by the creation of money. However in the short run  things like the increase in the price of oil  because of increased demand can produce inflation and demand for goods due to major wars are inflationary. When we were on the gold standard  inflationary period were followed by deflationary ones  so measure over decades  prices  changed little, but  there was high inflation for years at a time. Since WWII the fed prevents the deflationary periods  by increasing the money supply.

http://www.visualizingeconomics.com/2008...

Almost 70% of the oil we use is imported and like all imported good oil becomes cheaper in dollars  when the exchange rate improves.