I understand why inflation currently happens. The price of gas goes up, so the cost of transporting goods goes up, so the cost of production goes up, etc etc. I can wrap my head around that. But how did it start? What was the first thing to go up in cost, creating this chain reaction? Could it have been avoided if the initial thing did not rise in cost?
In: Economics
In your analogy, it started when gas price went up. Which was a decision of the supplier.
>But how did it start? What was the first thing to go up in cost, creating this chain reaction? Could it have been avoided if the initial thing did not rise in cost?
You’d need to go back in time before money existed to know this.
But ultimately, it is about supply and demand. If demand for a good randomly goes up faster than supplies available then the supplier will be incentivised, or else pressurised, to satisfy that extra demand.
But they won’t have enough goods – and need money in order to produce extra stock. But then they can’t increase output in order to get extra money, because it’s that same extra output that they can’t afford to produce.
So how can suppliers acquire the extra money through their existing stock?
They’ll inflate the prices so that they get extra revenue per item, so that they’ll have extra money to reinvest back into producing more goods.
And so “how did it start”? Usually via either an acceleration of demand of decrease in supply.
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