I don’t understand why shortage of product causes inflation across the board. For example, eggs are hard to get, but everything goes up in price due to the shortage. I can understand that low supply of eggs will cause the price of eggs to go up, by why does it affect all the other prices of food too?
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Eggs are used in a lot of food products. If the price of eggs suddenly climbs, other producers using eggs faced increased costs.
Some consumers may also shift their buying habits to other goods instead, driving demand up there.
Inflation is already an average, not every products price has to rise to have inflation. And a shortage of one product means its going to get more expensive as supply and demand determine the price and supply drops.
OK say I am a delivery driver who has bacon and eggs every morning before doing my deliveries, if eggs go up in price that means I have to pay more for bacon and eggs in the morning so I am going to want more money in wages to pay for me doing deliveries. That increase in delivery cost now has to be paid by all the companies wanting stuff delivered.
Let’s say everyone buys 10 eggs a week.
Suddenly, for some reason, there is not enough eggs for everyone who used to buy those eggs.
Which means there will be less eggs to be sold. And also there will be people increasing the price of eggs, since there is an increase on the need of it.
Then, eggs that were used to manufacture other things, like bread, also are in short offer because the demand of eggs per se is increased and there will be ppl who sell eggs looking to profit more selling eggs to the public.
Now, ppl who couldn’t buy eggs, gonna buy other stuff, which wasn’t as used before. So it also gonna have an increase in demand, thus also increasing the price of it.
It’s a generic idea of how the stuff works.
Mostly it doesn’t. There was a spike in egg prices, but that didn’t cause the price of apples or lettuce to go up. It did temporarily increase general measures of inflation based on the cost of eggs (i.e. if everyone spent an extra $100/year on eggs, that $100 would be reflected as inflation).
There are some products that will have that affect — oil is a big one, since nearly every good we purchase is transported by trucks that require fuel.
It will depend on a lot of different factors. Sticking with the example of eggs, eggs and egg by-products (ie. dehydrated/powdered eggs) are used in a *lot* of the food we eat in the west. Everything from muffins, cakes, and bread to the breading on your chicken fingers can have eggs in them.
And let’s not forget one of the most ubiquitous condiments in the world: mayonnaise. Traditionally, mayonnaise is made by beating eggs and then adding oil in a steady stream while continuing to mix until it forms mayonnaise.
Now we’ve got not only mayonnaise, but everything that mayonnaise is in, which is a lot. An awful lot. And now all of those things are influenced by the price of eggs though realistically, a spike in the price of eggs isn’t likely to cause a spillover effect to other products. The issues we’re having now aren’t that one product has gone up in price and everything has gone sideways. The issue is that a lot of products have gone up and the people who had the most to gain from riding the inflation wave to record profits are the ones setting the prices of what you buy at the grocery store.
Inflation is calculated as an average of a bunch of different things. The US government has something called a “Consumer Price Index” and they monitor the price of a lot of stuff. Gas, food, mortgage payments, etc. The US calculates inflation based on increases in those prices.
Shortages cause prices to spike, because you don’t have enough stuff to go around anymore. Take eggs for example. Let’s say that in the United States, people eat 100 million eggs per day (I don’t know if that’s correct, so let’s just guess). If eggs normally cost a quarter each, then that’s $25 million spent on eggs each day. So if there’s a shortage, and only 50 million eggs get produced each day, then the price should double, right? 50 cents each, so it’s still $25 million per day, right?
Wrong. There are still 100 million people out there who want their egg today. And now they’re in a bidding war against one another. Only half of them can get their egg. The price will continue to rise as long as people are willing to pay the new price. Me, I don’t like eggs. You can keep them. I don’t even want to pay a quarter for them. But some guy out there will pay $5 an egg if it means he gets his. The price continues to rise until 50 million people say “screw that, I don’t need an egg if it costs that much”. The other 50 million people are willing to fork over the money, so that’s the new price.
Supply and demand. Low supply of a good with high demand means the price goes up.
Remember, inflation is just the measurement of how much prices have increased (on average). It is not the direct cause of the increased prices.
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