4 ms·

I believe it doesn't exactly work this way; because the initial driver of the inflation was someone (let's say the landlord in your example) raised their prices

I believe it doesn't exactly work this way; because the initial driver of the inflation was someone (let's say the landlord in your example) raised their prices. Yes everyone else should raise their prices to adapt, but it's not everyone. One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).

xyzzy123 5y ago
Nobody "blinks" they just run out of pricing power. Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't. So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices. In a loose sense, all pricing is a kind of negotiation. Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices... Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc). Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals. After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing". New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.

xyzzy123 5y ago

Nobody "blinks" they just run out of pricing power. Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't. So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices. In a loose sense, all pricing is a kind of negotiation. Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices... Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc). Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals. After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing". New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.