Inflation is about nearly all goods going up in price.
This makes the cost of living go up,
Which causes people to demand higher wages.
Businesses then pay for the higher wages by raising prices even more. It becomes a cycle.
This requires a sustained change in prices of most things. So, are we seeing inflation now, or is this just a temporary increase in prices caused by the pandemic?
This snapshot looks like inflation. Too much money chasing too few goods.
But if we back up, what will we see? Will it still look like inflation?
Or will it look like a burst of pent-up demand from the months spent in lock down? In this case, the glut of money in the market will be short-lived, as will the shortage of goods.
Many think this is what’s happening. Nearly nothing has been normal for the past year. It makes sense that there will be an imbalance as we reopen the economy.
Next week, we go back to investing. Why is trusting a dumb computer with your money sometimes better than trusting a smart human?
Market Place Podcast episode on inflation and deflation https://www.npr.org/2020/07/01/886036317/inflation-deflation