Why does the cost of living keep rising?


Disclaimer: I’m from North America. I know it’s happening here but I don’t know if that’s the case on a global scale.

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In general, because a little bit of inflation is preferable to keep people spending or investning instead of just hoarding cash.

More recently, COVID-related interruptions to supply chains have impacted many businesses and caused increases in prices due to lack of supply (chip shortages affecting cars and appliances, lumber and steel shortages affecting all sorts of goods), increases in shipping costs (cargo ships, trucking, etc), increase in labor costs due to worker shortages.

There isn’t a single cause to point to, but it basically is a consequence of growing economies. Take housing for example. Suppose that the economy is experiencing rapid expansion. People who previously would rent will now choose to buy instead. In the short term, the construction industry can’t rapidly increase how quickly it produces houses. Since more people want a house but the number of new houses hasn’t significantly changed, housing prices will go up. That is an example of demand-pull inflation. Another cause is cost-push inflation. In this case, for whatever reason, the cost of resources increases. This causes manufacturers to start raising prices to offset the increased costs. This probably explains a large amount of the recent inflation. Due to covid prices went up due to reduced output caused by covid restrictions.

National banks are another factor of inflation. Slow predictable inflation is generally good for the economy. National banks, like the federal reserve in the US, are responsible for trying to keep the economy growing while limiting inflation. The biggest stick they have to do this is the interest rate. The Fed lends money to banks, which in turn lend money to consumers. A bank will borrow the money and then lend it out in the form of mortgages, car loans, business loans, and so forth. Low cost loans being available encourages businesses to embark on new enterprise, it may surprise you to learn that even very large companies often borrow money to expand. Cheap loans encourage buying houses and other items that require a loan. The flip side is that as the money supply increases, the money value decreases. It’s simple supply and demand. The more of a thing there is, the less it’s worth.

Now one final point, you claim that the cost of living always rises. That isn’t strictly true. We use various indexes to measure inflation like the consumer price index, but it isn’t so simple. Consider the price of a smart phone today compared to the price of a smart phone in the 1960s. Even for things like homes and cars which have existed for many decades it’s difficult to have a one for one comparison. Modern cars have many advantages to older cars. Inflation is likely, but measuring cost of living increases is tricky. Even land is tricky. There is an area I live that 20 years ago was largely farmland. Now it is some of the most expensive property in my city. Living in Seattle today may provide benefits that living in Seattle 40 years ago did not. For instance.