eli5: Why does shortage of a product produce high inflation across the board?


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?

In: 1

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.