> now you only have $3 to spend on other things, which reduces the price of those other things. That's only true if anyone is willing to sell those other thing

> now you only have $3 to spend on other things, which reduces the price of those other things. That's only true if anyone is willing to sell those other things at lower prices. With changes in price in something as base-level as oil, the production costs of virtually all goods and most services increase. For low-margin goods, price can't decrease even if demand decreases. As people see their income dwindle, most only buy strict necessities and stop buying other things entirely - leading to increases in the price of luxuries to make up for reduced demand (targeting only those who can afford things at higher prices). Let's say John has $50 and Sally has $10. The price of X which they both need goes from $5 to $7. The price of Y that they both want but don't need used to be $5. After buying X, John has $43 and Sally has $3. Sally can't afford to buy a Y, but since she doesn't need it, that's ok. The makers of Y realize that they will only get $5 if they only sell to John, where in the past they were making $10. So, they increase the price of Y, knowing that John will still afford to buy it at $7, so they now make $7 in total. If instead they had reduced it to $3, both John and Sally would have bought a Y, but the company would only make $6 in total.