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Inflation is an increase in (printed) money chasing the same amount of goods and services. But consumer spending has dropped despite the stimulus. The lockdown
by cik2e 6y ago
Inflation is an increase in (printed) money chasing the same amount of goods and services. But consumer spending has dropped despite the stimulus. The lockdown has eliminated many options for discretionary spending and people have been dropping their extra unemployment money into paying down credit cards instead of trying to buy more stuff on Amazon. Basically, the economy is down despite the stimulus. To have inflation, we would need to see a rise in demand from free money and that’s not what’s happening.
- bleepblorp 6y agoEconomics recognizes two types of inflation: cost-push inflation and demand-pull inflation. Demand-pull inflation follows the process you described, namely prices rise because too much money is pursuing too few goods. The other type of inflation, cost-push, happens when the cost of goods rises independent of demand. Abuse of monopoly power can cause cost-push inflation (hello, business software pricing) but so can increased costs of labor. On balance, cost-push inflation is a more probable outcome of the pandemic. It's physically harder to Do Stuff because workers need to stay further apart and because many will get sick and be unable to work. This will drive up prices to an extent, but price rises will be constrained by slack demand caused by reduced employment.