So, inflation. Prices and paychecks go up (though not toe-to-toe), and money loses value because it takes more money to buy the same thing than it took earlier. We hate it when it's high because prices go up, everything's expensive, we can't buy shit. Consumers cry. However, the opposite is just as bad.
Low inflation means prices aren't going up much, or at all. Consumers cheer. Very low inflation, however, close to 0% or even negative (that's deflation), is a problem. If prices start dropping, rational people will hold off from buying stuff because they'll wait for prices to go even lower. That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money.
Another thing where inflation has meaning, is debt. Mortgages, leases, etc. Even the 10 bucks you owe a friend. If inflation is high, those debts start having less impact on your money because by then you hopefully got a small raise, and so debts are easier to pay off. Low inflation makes debts bite just as hard, and much harder if deflation happens, because bread being cheaper doesn't mean your mortgage payments will be smaller.
Anyways, quick crash course on inflation done, hope you learned something. More educated Peters pls correct me. Barely educated Peter out.
The word Rational in the economics context is a bit of a weird term, in my opinion. It says that people will take the most efficient and effective solution possible. That is rarely the case, as people are emotional creatures, that's why behavioural economics can exist at all.
However, if prices go up, and we wait for prices to go back down, that may not always happen. In some cases, especially for essential items, the prices never go back down. Exceptions exist (gas comes to mind), but more or less that's how it goes. For example, groceries. There will always be a demand, because everyone needs food. Thus, grocery businesses have no reason to lower prices if consumers are willing to pay what they're quoted. And consumers are willing to pay whatever they're quoted to pay for groceries because they have no choice. What are we gonna do, just not eat?
Yeah I understand the basic arguments, but if you go just a tad extreme it falls apart pretty quickly. Sure, consumers will pay what they can for groceries because they “have to” but if you change bread to $15 a loaf tomorrows, I promise you people will begin doing their own gardening etc. same goes for pretty much every other resource.
As they should. In the current time, it's almost always beneficial to just grow your own or find ways to cut costs, leaving businesses without their profits. Even if not for cost-saving reasons, having your own supply is usually healthier too. Don't know what they spray tomatoes with to last as long as they do in stores, but pretty much anyone can grow a few tomatoes on a window sill. And I support that.
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u/BalticHorndog 9h ago
Hi. Barely educated Peter here.
So, inflation. Prices and paychecks go up (though not toe-to-toe), and money loses value because it takes more money to buy the same thing than it took earlier. We hate it when it's high because prices go up, everything's expensive, we can't buy shit. Consumers cry. However, the opposite is just as bad.
Low inflation means prices aren't going up much, or at all. Consumers cheer. Very low inflation, however, close to 0% or even negative (that's deflation), is a problem. If prices start dropping, rational people will hold off from buying stuff because they'll wait for prices to go even lower. That can and will kill businesses because they don't get any revenue when people aren't buying stuff. And when business isn't booming, it can mean layoffs at your local grocery store or something, because business owners also want to save money.
Another thing where inflation has meaning, is debt. Mortgages, leases, etc. Even the 10 bucks you owe a friend. If inflation is high, those debts start having less impact on your money because by then you hopefully got a small raise, and so debts are easier to pay off. Low inflation makes debts bite just as hard, and much harder if deflation happens, because bread being cheaper doesn't mean your mortgage payments will be smaller.
Anyways, quick crash course on inflation done, hope you learned something. More educated Peters pls correct me. Barely educated Peter out.