I’m going to use fake numbers here for the sake of simplicity to explain a concept of what just happened.
2020 absolutely had inflation from multiple different reasons. But…most of those reasons were temporary, which have now resolved.
So, here’s where those fake numbers come in.
Lets say 2019 prices were around a 5% inflation. There is no covid. It’s the last year of normal life. Stores aren’t going crazy.
2020 comes, all hell breaks loose. Actual inflation is now at 13%. But stores are trying to figure out how to stay alive. So they charge as if we’re at 22% inflation. This massive jump makes consumers buy considerably less. Spend more currency, but buy less product.
The end result is these companies made record profits selling less.
And then the work shortages caught up. The shipping shortages caught up. The microchip production resumed. And that temporary actual inflation fell. But because our country has never had a situation where inflation might fall, stores have just kept charging that 22% inflation prices, even though they’re paying maybe 7% inflation now. A realistic jump considering everything thats happened.
Meanwhile consumers are seeing gatoraide shrink from 32 to 28 oz, and instead of charging $1.25 for it, it’s being sold for $3. And consumers are saying “I’M NOT PAYING MORE TO GET LESS!”
And so stores are probably going to drop that $3 to $1.75. You’re still paying more and getting less, but that $3 price is in your mind now so you think you’re paying a normal fair price, rather than getting ripped off compared to 5 years ago.
So instead of charging 22%, now the artificial inflation is at 16% while actual inflation is 13%. They’re still ripping you off, but now they want to continue to rip you off. Can’t rip you off if you buy nothing.
This is what’s actually meant by the “invisible hand.” They pushed prices past what the market was willing to bear, and lost sales as people made do without. Now they’re adjusting prices back down, because it makes more sense to accept a smaller margin and make it up in volume. It’s a textbook example of the demand curve in action.
When market-based systems work, they work fairly elegantly. It’s the cases where they break down that I get concerned with.
The only reason they’re doing this is because they realized they’ll make more money by lowering prices. Do not mistake this as good will.
I’m going to use fake numbers here for the sake of simplicity to explain a concept of what just happened.
2020 absolutely had inflation from multiple different reasons. But…most of those reasons were temporary, which have now resolved.
So, here’s where those fake numbers come in.
Lets say 2019 prices were around a 5% inflation. There is no covid. It’s the last year of normal life. Stores aren’t going crazy.
2020 comes, all hell breaks loose. Actual inflation is now at 13%. But stores are trying to figure out how to stay alive. So they charge as if we’re at 22% inflation. This massive jump makes consumers buy considerably less. Spend more currency, but buy less product.
The end result is these companies made record profits selling less.
And then the work shortages caught up. The shipping shortages caught up. The microchip production resumed. And that temporary actual inflation fell. But because our country has never had a situation where inflation might fall, stores have just kept charging that 22% inflation prices, even though they’re paying maybe 7% inflation now. A realistic jump considering everything thats happened.
Meanwhile consumers are seeing gatoraide shrink from 32 to 28 oz, and instead of charging $1.25 for it, it’s being sold for $3. And consumers are saying “I’M NOT PAYING MORE TO GET LESS!”
And so stores are probably going to drop that $3 to $1.75. You’re still paying more and getting less, but that $3 price is in your mind now so you think you’re paying a normal fair price, rather than getting ripped off compared to 5 years ago.
So instead of charging 22%, now the artificial inflation is at 16% while actual inflation is 13%. They’re still ripping you off, but now they want to continue to rip you off. Can’t rip you off if you buy nothing.
This is what’s actually meant by the “invisible hand.” They pushed prices past what the market was willing to bear, and lost sales as people made do without. Now they’re adjusting prices back down, because it makes more sense to accept a smaller margin and make it up in volume. It’s a textbook example of the demand curve in action.
When market-based systems work, they work fairly elegantly. It’s the cases where they break down that I get concerned with.