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
>And as wages don’t rise with inflation the same way foods do fewer and fewer people each decade could afford it?
This is the assumption that gets you into trouble.
Wages do go up with inflation. The reasons you don’t notice it is the same for wages as it is for bread (most of the time):
1. It is generally gradual and slow
2. It does not go up linearly, but in unexpected spurts
3. Individual experiences do not line up very well with systemic changes
4. There are so many side-effects that it would be pretty hard to notice, even if the first three points did not mask the change
One of the main drivers of inflation *is* wages anyway, so it would be a bit odd if they were completely unlinked.
The overall increase in wages can also be masked, because older industries lose their importance (thus, wages in those industries stagnate) even as wages over the entire economy are going up, perhaps even faster than inflation. So if you follow the wage of a coal miner, you might see their wages stagnate or even declines. But that has more to do with the overall importance of coal to the economy declining than anything related directly to wages. This is part of how economies gently (or not so gently) push people into working where they are most needed.
Finally, we have just gone through a few years of…weirdness. Markets are still trying to adjust. And if you are in the U.S. you have an additional decade of weirdness coming at you.
The “IRA” — one of the most cynically named pieces of legislation ever — is all about moving manufacturing back to the U.S. It will most certainly *increase* inflation as the manufacturing base is built out, with all the monetary slushing that this entails. The people who wrote the IRA knew this would happen, which is why the name is so damn ironic.
I am no Biden fan by any stretch, but despite the extremely misleading name, this is a *powerful* piece of legislation that is exactly the right move at the right time. I’m a little jealous here in Europe that the U.S. has figured out what is going to happen over the next decade or two, but we are still futzing about as if nothing has changed. I just wanted to throw that in there.
In any case, this is going to cause even more strangeness in the price structure in the U.S. as you wean yourself off the previously cheap labor in China and rebalance the economy to include more manufacturing.
Be careful when consuming headlines. They tend to simplify to the point of being misleading. Also keep in mind they depend on clicks to survive. “Everything is fine, have fun” is probably not going to get as many clicks as “People starving as wages stagnate!” And I do not want to say that there are no problems, but the headlines sometimes point us in the wrong direction or give the wrong impression.
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