I did a quick google and it said because demand is out stripping supply for goods and services. I would have thought supply and demand was never static at any time. Why is it a massive issue now? Supply and demand of what exactly? I understand food price going up but how does that relate to the value of currency? If a recession hits us will it cause inflation to go down because people aren’t demanding as much? Do more people have more money causing higher demand? Thanks for your expertise
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Inflation is quoted as an aggregate number. Not everything is going at the same inflation rate. Some things might even be deflating. It’s a convenient datapoint to show overall trends but it also hides a lot because there’s only so much that can be communicated with a single number. There is a lot of misinformation/disinformation around the topic because of politics. Always check for yourself by going to primary sources like the [Australian Bureau of Statistics](https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation)
> Supply and demand of what exactly?
You will need to read about how the Australian government calculates the inflation rate. In the US the BLS website states exactly how it calculates inflation and the weight each category is given. It gets very detailed but very few people actually look at it more closely. You can see inflation/deflation for every region/locale in the US, what goes into each of the calculations, and the weighting given to each of the categories both today and in the past.
> Why is it a massive issue now?
Inflation tends to be reactionary. Which means whatever caused it typically happens long before you see the inflation as a consumer. For example, the pandemic didn’t really hit consumers until 2021/2022. But in 2020 and 2021 there were clear signs that inflation was coming because we saw a lot of inflation in the PPI (Producer price index, inflation for businesses/factories). Sometimes it takes months or years for the impact to start showing on store shelves. Right now we’re seeing severe disruptions in both supply and demand. The pandemic caused global spending habits (demand) to completely shift when things got shut down and then shift again when things opened up. Supply was first disrupted by shipping issues (several weeks to get a cargo ship unloaded) and factories getting shut down cutting supply. Then the war in Ukraine saw one of the largest exporters of raw materials and fossil fuels (Russia) getting sanctioned and the constant disruptions in China’s factories until November last year. Australia will have its own factors to take into consideration like how much it relies on trade with China.
> I understand food price going up but how does that relate to the value of currency?
Currency value is a contributor to inflation, but they are not the same thing. Inflation is only looking at the change in price. Currency value can contribute to food inflation if the food is imported or a large portion of the inputs to make the food (like fertilizer or equipment) is imported. Or if energy prices go up (which it has).
> If a recession hits us will it cause inflation to go down because people aren’t demanding as much
That is the theory. It’s not just about consumer spending habits by the way. It’s also business spending habits. This is why the prevailing wisdom is that higher interest rates are needed to curb inflation. It forces both consumers and businesses to slow spending, reducing demand. The thing to keep an eye out is how much it hurts supply as well.
> Do more people have more money causing higher demand?
Generally speaking yes, but not always. It could instead inflate things like assets (stocks/property). It’s a factor, but not the only factor in inflation. For example, inflation can happen even if people still had the same amount of money or less. All that needs to happen is for a country like the US or Russia to stop producing/exporting fossil fuels which would cause energy prices to skyrocket since they are the top 2 fossil fuel producers in the world (sometimes swapping places with Saudi Arabia).
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