That’s not how inflationary expectations work

As it is, the Bank expects consumer price inflation to reach 4pc by the end of the year. The danger is that the surge raises inflationary expectations and therefore becomes a permanent fixture. If people expect higher inflation, it promotes a culture among companies of profiteering price rises even when not strictly justified by rising costs.


Companies do not raise prices because such are justified by rising costs. Companies are run by capitalist bastards. They’ll rook the consumer. If they can of course. So, and therefore, they’ll raise prices if they think they can. At any one time they’ll charge the maximum they can get away with.

This is tempered by competition of course.

So, if other folks are raising their prices then more will think that they can get away with raising prices – that’s how cost changes get into rising prices.

But inflation expectations? No, it’s that the consumer is expecting inflation – that’s the expectations bit – and therefore can be rooked by rising prices.

The justification for price rises in a capitalist market economy is that the producer can raise those prices, nothing more. Whether they can get away with it is what changes in an inflationary environment.

5 thoughts on “That’s not how inflationary expectations work”

  1. In other words, if lazy louts like myself don’t look around and find the cheapest offer, the bastards can screw me.

    Maybe I’d better ask Katerina about getting a quote from her nephew to paint my house.

  2. @Boganboy Yes? In my years loitering in Oz I had to get used to the charming custom of serious price hikes during holidays and other festive occasions. Been a few years, but I seriously doubt that has changed.

    Logical because of the demand spike and unavoidability of having to buy certain things and in no way partially driven/arranged by the local masonic cult chamber of commerce and all that.
    One learns to anticipate and have decent storage for stuff, even in urbanistan.

  3. Do you not remember the high inflation days, Tim? Too young, I s’pose. People became resigned to it. You went to buy something, the price had gone up. You went somewhere else & it had gone up there. It had become expected.
    I’m sure there were lots of people on the supply side were screwing the consumer. Competition only really works when players have time to check the market. In periods of high inflation the time taken to check the market is higher than the price movement intervals. Wouldn’t be if people had unlimited time to check markets. But in reality they don’t

  4. As I recall the economy was not rocking along when we had high inflation. We’re companies making more money then?

    They’d make more for a while, but time would quickly eat its value. And if they had loans, the they were considerably more costly.

    I’d want some actual evidence that inflation was good for any business before I accept it. It seems like a “just so” story to me.

  5. @bloke in spain
    One advantage over the old days is the internet. The ability to check prices in seconds or minutes vs trudging to each shop

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