Just because the numbers keep increasing, doesn't mean business is 'booming'. Inflation is causing what appears to be an increase in business but it isn't real

Just because the numbers keep increasing, doesn't mean business is 'booming'. Inflation is causing what appears to be an increase in business but it isn't really. A simple example: Joe has a hardware business, and has one 16lb sledgehammer in stock that cost him $5.00. He sells that at $8.00 so he now has a 'profit' of $3.00. That's great so far. So, he now has an empty space where that hammer used to be, and he has to replace the hammer on his shelf. But that new stock from the manufacturer now costs $6.00. Meaning that his 'profit' has now decreased to $2.00. In other words, Joe has made a sale, and he's now back to where his stock level was previously, but his profit margin has dropped by a third. Not only that, but the TaxMan has assessed Joe's business, and he finds that Joe's stock-take indicates that his value of assets has increased by $1.00, meaning that Joe must have made a profit of $1.00 to pay for that increased stock-asset. The Taxman adds stock-value increase plus sales-profit to get an idea of Joe's income. So an extra $1.00 in stock-value, and $3.00 from the hammer sale ($8.00-$5.00) and says Joe is $4.00 'better off', and taxes him on that $4.00. But you and I know that, in reality, Joe is only $2.00 better off from that hammer sale. The numbers are bigger, but business is not as good as it looks. * I discovered this problem when it affected me personally during the heady days of 15% inflation in the 1970s.