Doesn’t that make inflation worse?
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Why would I, a business that is a drop in the bucket compared to the size of the entire US or global economy, not raise prices in an inflationary environment? Even if I were willing to bite the bullet out of the goodness of my heart, whether I do so or not will have absolutely no impact on inflation throughout the economy, because inflation is a general rise in the price level, and I am meaninglessly small.
The only thing that prevents me from raising prices is the fear that doing so will reduce my overall profit because people will go to competitors. But in an inflationary environment, if the cost to me of coffee goes up by 20% in a year, that gives me information about the prices other people are probably paying for their coffee. They, too, are probably paying more for their own coffee. So I make a calculation that those people will also not be making an acceptable profit without raising their prices, leaving me free to raise my own prices. That’s what I do. And it works.
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