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RE: Supply and demand...

Posted by Dave_K on November 9, 2021 at 17:06:37:
You could see inflation in the markets where the wealthy spend their money as far back as 10 years ago: first class travel and dining, boats, aircraft, luxury apartments and homes, art, even high end audio equipment. And obviously, it's been present in the asset markets.

But it wasn't just inflation for the wealthy. Home prices were already going through the roof before the pandemic. The trades and architects and building suppliers were going 110%. And there were all kinds of little price bubbles around things of personal or recreational interest: craft beers, backpacking gear, guns, arts & crafts, mid-century modern anything... Conveniently, it was predominantly stuff not tracked by metrics like CPI.

The start of the pandemic was an impulse. The rebound from that impulse coincided with stimulus and IMHO we've over-corrected. Inflation is now visible to pretty much everyone. Which means I think we're at a tipping point. If most people take the rosy view that inflation is just a hangover and things will get back to normal quickly, then maybe they settle down and stop trying to buy it all now. But if people start to anticipate rising prices, they will be motivated to make purchases of all sorts sooner rather than later. And if inflation cuts into people's real rate of return on investments, they will be less motivated to invest. And if people can borrow at rates below the rate of inflation then they will be especially motivated to extend their debt to buy now.

Inflation can become a feedback loop. It especially hits the poor and other people who have little or no power to negotiate an increases in their income.