It's more about people holding out on buying things because they believe it will be cheaper later. Food is a bad example because people will always buy food, regardless of the cost. But why would you buy a car if it might be $2,000 cheaper in a few months? Then a few months pass and now it looks like that car might be even cheaper, will you spend now or keep holding out to see if it goes lower?
It's such a bad system when the logic follows the other path too. "I should buy a car now because it's only likely to get more expensive, while my income stagnates"
Yup, that's why many economists agree that having very low inflation (0.1-2% YOY) is better for the economy compared to no inflation. But that also only works so long as salaries increase alongside it, which in many parts of the world, they haven't.
Well, the other advantage of inflation is that wages are sticky downwards. It's very unpopular and difficult to cut workers' wages, so if wages in a particular job are too high, inflation provides a natural release valve to gradually reduce the real wages over time. Sucks to get your real spending power reduced but it beats being laid off.
All that to say that some salaries not tracking inflation is a feature, not a bug. But you're right that if median wages fall behind inflation, that's bad news for everyone's standard of living.
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u/InternalCapable5286 8h ago
It's more about people holding out on buying things because they believe it will be cheaper later. Food is a bad example because people will always buy food, regardless of the cost. But why would you buy a car if it might be $2,000 cheaper in a few months? Then a few months pass and now it looks like that car might be even cheaper, will you spend now or keep holding out to see if it goes lower?