Doesn’t that make inflation worse?
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I don’t have the exact answer because I’m not expert, but my country had 96% inflation last year, so I know one or two things about it. One of the causes is the following: Printing money.
You see how governments handed out checks to every person during the quarantine? Well, countries can print money and put it into circulation. But the thing is that money bills need to be backed up against some other thing (gold, or US dollars in many countries). So, lets say you have 10 pieces of gold. You print ten 1 dollar bills and each bill will buy the same amount of goods than 1 piece of gold. Let’s say you print ten more bills, but you have the same gold. Now each bill’s value is half a piece of gold. And so on…
The problem isn’t that goods get more expensive, is that money decreases its value.
The price raising is inflation. If the materials you’re buying to make stuff to sell become more expensive, then you’d want to raise prices as well so that you can earn as much as you did before.
They aren’t concerned with the impact on inflation, instead the costs that the workers are having to pay in the shops has gone up so to keep the workers from losing out they raise workers wages, in addition fuel, electricity and other costs also have been rising so they raise the costs of the goods that they provide to maintain the profit margin.
1) Prices are rising on raw materials from which goods are produced. Despite how it sounds in this thread, they don’t do this in a bubble. It’s not where material phenomenon starts or anything. It’s all part of larger patterns.
2) Yes, it makes inflation worse.
3) Wages haven’t gone up in keeping with inflation for decades. Rather, neoliberal economics suggests that trying to keep the work force as underpaid as possible correlates with curbing inflation. This way, prices can be raised while inflation is somewhat mitigated. People don’t tend to raise wages, not in line with the cost of living or inflation. From what is being said here, it would seem that the 2020 shutdown ended with people having tons of extra money that they spent, driving up prices. But most people couldn’t/didn’t work. This scenario is fictive. Bordering on victim blaming.
I don’t have the exact answer because I’m not expert, but my country had 96% inflation last year, so I know one or two things about it. One of the causes is the following: Printing money.
You see how governments handed out checks to every person during the quarantine? Well, countries can print money and put it into circulation. But the thing is that money bills need to be backed up against some other thing (gold, or US dollars in many countries). So, lets say you have 10 pieces of gold. You print ten 1 dollar bills and each bill will buy the same amount of goods than 1 piece of gold. Let’s say you print ten more bills, but you have the same gold. Now each bill’s value is half a piece of gold. And so on…
The problem isn’t that goods get more expensive, is that money decreases its value.
Inflation is when the supply of money is greater than the supply of goods. Since there is more money in circulation, there is greater demand for goods. Higher demand for goods results in higher prices. Raising interest rates is an effort to reduce borrowing. This reduces the money supply, which will then better match demand for goods. Fixing supply chain issues also makes goods more available to better match demand.
1) Prices are rising on raw materials from which goods are produced. Despite how it sounds in this thread, they don’t do this in a bubble. It’s not where material phenomenon starts or anything. It’s all part of larger patterns.
2) Yes, it makes inflation worse.
3) Wages haven’t gone up in keeping with inflation for decades. Rather, neoliberal economics suggests that trying to keep the work force as underpaid as possible correlates with curbing inflation. This way, prices can be raised while inflation is somewhat mitigated. People don’t tend to raise wages, not in line with the cost of living or inflation. From what is being said here, it would seem that the 2020 shutdown ended with people having tons of extra money that they spent, driving up prices. But most people couldn’t/didn’t work. This scenario is fictive. Bordering on victim blaming.
Inflation is when the supply of money is greater than the supply of goods. Since there is more money in circulation, there is greater demand for goods. Higher demand for goods results in higher prices. Raising interest rates is an effort to reduce borrowing. This reduces the money supply, which will then better match demand for goods. Fixing supply chain issues also makes goods more available to better match demand.
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.
Honestly it’s confusing because it’s hard to predict. A lot of economics in the real world involves human emotional responses. We try to boil it down to math, and there are definitely some predictable parts. But human emotions are weird.
Yes. Raising prices during inflation makes things worse. But it’s hard to figure out what to do when you’re facing inflation that makes it *better*.
The textbook reason for inflation is “people have too much money”. That means they start buying “too much” stuff. That affects supply: the people who make things can’t make enough to satisfy everyone. In the math of economics, we note that if they raised their prices, they’d still sell out, so they’re losing money if they DON’T raise prices. They’re supposed to find “equilibrium”, a math concept where they make the most money. That doesn’t mean “they sell the most product”, it means the price where they make the most money based on how many people buy it.
You also have to reckon, though, if inflation is wide-scale, the people who make things are having to pay more money to get the things they use to build things. If their costs go up, their profit goes down, so they have to raise prices to keep pace.
But sometimes the motives are nefarious. For example, investigations into egg prices are happening right now. Eggs are getting more expensive, and the blame is falling on both inflation and an avian flu that wiped out a lot of chickens. But now that the companies’ financials are becoming available, things look weird. The amount they *lost* due to these things is not proportional to the amount they’ve raised prices! They’ve been in trouble in the past for “collusion”, which is when companies illegally make agreements to raise prices so they all profit more.
What’s that? It can be illegal to change prices? Yeah. We have laws about how companies can do certain things. If we *really* let them do what pure economic math says, sometimes market conditions get into a kind of bad feedback loop and it can hurt society as a whole. So most of the founders of modern economic theory noted that it’s kind of like a scale, and every now and then the government has to step in and rebalance it with regulation.
So it’s kind of a mess. But the main reason companies raise prices during inflation is the simple economic math leaves them no choice.
The main thing that’s different right now is the “people” who have too much money are the *companies* that are raising prices. That’s a new situation, and our economy isn’t really set up to handle that.
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