If inflation is continuous year-on-year, how does that become tenable over say 100-200+ years

Question

This thought came to me as I was food shopping. So I know there are things that increase the price of certain items (beer, cigarettes, sugar tax – UK) but they also increase with inflation each year like other foods such as bread.

Apparently, the average inflation raise over the last 10 years in the US is 2.37% as of July 2023. So if it is the same in another 10-years, over the space of 20 years inflation would be 4.74%, if we say inflation is the same? And so on and so on. If it continues wouldn’t prices, for say, bread just end up getting higher and higher and be like $10-15+? And as wages don’t rise with inflation the same way foods do fewer and fewer people each decade could afford it?

Now this is just random thoughts I had when shopping and I am not making any comments on any politics. All I wanted to know is, is my thinking true that prices will just go up and up indefinitely decade-on-decade, why or why not? And I am an idiot so imagine I am 5.

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Edit: Went to sleep and woke up to about 300 notifications, thanks for your explanation to a Neanderthal like myself.

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In: 4366

Answer 1

You know how everyone jokes about how their grandpappy says he could buy a car for $3500 and a house for $10000? Well he actually could have.

The general consensus among economists is that we always want a very slow inflation because stagnant or shrinking economies discourage investment (your money will be worth more later if you just hold onto it) and growing ones encourage investment and spending (there is less reason to just horde dollars because they will be worth less over time).

Because governments want to encourage spending and growth, fiscal policy is directed to a continuously growing economy, and aiming for a continuous, but slow inflation. That is why, except when things go wrong, there will always be continuous inflation.

As per wages, in theory they should trend upwards with inflation but in reality they tend to lag behind it and then raise in bursts when it becomes impossible for the current generation of those working for low wages to survive and then stagnate again.