Inflation - A Commerce Journey - Part 2 - Ep5

Inflation

Continuation of Inflation P-1

In the last episode, we discussed inflation, Its causes, some examples and a survey conducted.

We dropped off at the question of how extensively people have studied inflation, discussed the age groups, asked if they had heard about inflation, and also asked them to give a short explanation in their own words of what they think inflation is.

This Episode will cover the rest of the survey questions and responses.

To start off -

We asked the people whether they saw an increase in the prices of goods and services, which is common when inflation is at play.

A surprising 95% of the crowd said yes! The crowd is rather observant regarding prices as seen by the responses, This is visible in various things, whether in real life or not. For example;

This item started off for 200 Million coins due to its rarity but over time the price has climbed and climbed, prices reaching over 800 Million which is over 4 times the starting price, all of this is due to excess money supply in the economy and the already scarce nature of this item. The valuation is currently 950 Million at the time of writing this.

The next question was a multiple-choice question related to the question above. It asked the respondents about the items in which they saw a price increase.

Almost 90 Percent of the respondents said that they saw an increase in Housing/Rent, Food, and Groceries. Almost 75 Percent saw an increase in Healthcare and education. Almost 65 Percent saw an increase in Entertainment/Leisure, Utilities, and transportation.

Everyone loves seeing an Increase in the prices of certain goods or services, as this shows evidence of the growth of the country or state's economy.

Only about 72% of the respondents said yes. Although it may seem wrong, we have to consider the age base yet again, with almost 20% of the age base being less than 18 years of age.

Here are some of the ways the respondents have had to change spending habits

In the next question, we ask the respondents what they think is the main cause of inflation, of course, this is a multiple choice with the actual answer being all of the above to test the people's knowledge

Surprisingly a small percentage, about 30-40 people clicked on all of the above options which is almost 45% of the people.

We asked the people about their opinion on who is responsible for inflation:

Here, just over 70% think that the government and central bank are responsible. Here are some of the reasons why they might think that:

The government is in charge of,

1. Controlling the Money Supply

• Central banks, which regulate interest rates and the money supply, are supervised by governments. Inflation may result from excessive money being poured into the economy or from improper management of interest rates.

2. Spending and Budgeting

• Governments may raise demand in the economy and raise prices by overspending or improperly balancing their budgets.

3. Assisting Supply Chains

• One of the responsibilities of a government is to keep production and distribution systems stable. Prices will inevitably increase if supply networks are disrupted by inadequate planning or policy.

4. Policies Regarding Trade

• Inflation can be exacerbated by tariffs, trade restrictions, or poorly crafted import/export regulations that raise the price of products, particularly those purchased abroad.

5. Managing Shocks to the Economy

• Governments are supposed to plan for and handle crises like financial crises, pandemics, and wars. Inflation can worsen during these periods if management is subpar.

6. Expectations and Communication

• Expectations are influenced by how governments communicate about the economy. More inflation may result if consumers think that prices will continue to rise since the government isn't doing anything about it.

7. Problems with Structure

• Long-term government policies are frequently the cause of issues like housing shortages or dependency on expensive energy sources. These add to growing expenses if they are not handled.

8. Defending the Public

• Ensuring that individuals can afford basic requirements is one of the government's main duties. The most vulnerable are frequently the ones who suffer when inflation gets out of hand.

Next, they thought that market forces such as supply or demand can be responsible for this:

1. Inflation Driven by Demand

• When there is a greater demand for products and services than there is supply, this occurs.
• For instance, people may rush to purchase particular goods around the holidays, but if companies are unable to meet demand, prices may increase.
• Why it's important: This kind of inflation can be fueled by increased consumer spending brought on by government stimulus or greater salaries.

2. Inflation Driven by Costs

• When manufacturing costs increase and companies pass those costs on to customers in the form of higher pricing, this happens.
• For instance, rising oil prices result in higher production and transportation expenses, which raises the cost of commodities.
• Why it's important: Cost-push inflation can be brought on by shortages in supplies, increases in wages, or increased prices for raw materials.

3. Disruptions to the Supply Chain

• Natural catastrophes, trade restrictions, and geopolitical wars are examples of supply-side problems that limit the availability of products, which raises prices.
• For instance, a drought may result in less food being produced, raising the cost of groceries.
• Why it's important: Scarcity from limited supply raises prices even in cases when demand remains same.

4. Modifications to Customer Preferences

• Unexpected shifts in customer preferences can put pressure on supply chains and raise prices.
• For instance, a spike in demand for electric cars may result in higher prices for rare earth and battery materials.
• Why it's important: Prices frequently rise during the time it takes for producers to adapt. 

5. Dynamics of International Markets

• Local prices are impacted by international commerce and the demand for commodities worldwide.
• For instance, a poor crop by a large wheat exporter raises wheat prices globally, which affects import-dependent nations.
• Why it's important: Global shifts in supply and demand have an impact on interrelated marketplaces.

6. Expectations that fulfill themselves

• People may purchase more now to avoid paying more later if they anticipate price increases, which would increase demand and accelerate inflation.
• For instance, people may hoard products during uncertain times, such as a financial crisis, which might lead to shortages and increased costs.
• Why it's important: The impacts of supply-demand mismatches can be amplified by expectations.

Lastly, Businesses and corporations:

1. Increasing Prices to Make More Money

• Inflation may be caused by large companies with substantial market power raising prices above what is required to pay costs.
• Example: Even when manufacturing costs are constant, a business raises prices during times of high demand.

2. Increasing Prices for Customers

• Cost-push inflation is the result of firms passing on rising expenses to customers, such as labor, raw materials, or energy.
• For instance, rising oil prices raise the cost of transportation, raising the cost of daily necessities.

3. Intentionally Creating Scarcity

• Some businesses use scarcity to increase profits by limiting supply or hoarding resources to maintain high pricing.
• As an illustration, a manufacturer postpones product releases in order to preserve exclusivity and strong demand.

4. Insufficient Competition

• Monopolies and oligopolies allow businesses to set prices in these marketplaces without worrying about competition, which allows prices to rise uncontrolled.
• For instance, a single utility company hikes prices gradually in places where consumers have no other options.

We will cover the rest of the form in Part-3