Understand the psychology of inflation

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In February 2022, inflation in the United States broke the ceiling: 8% price increase Compared to February 2021…

For the most serious, it is extremely severe violent. When every dollar counts, you can’t lose 8% of your purchasing power without giving up basic expenses.

And don’t get me wrong: for this as for the rest, the United States has a few months/years ahead – But it is coming to us.

Inflation is already in the supermarkets…

just less clear (Currently).

It swells unobtrusively, but as in the United States, it will take care of impoverishing all who have access to it.

Everyone wants to protect their skin

57% of Americans say their wages are not keeping pace with inflation at all.

45% of Americans want to change jobs, Standard #1: A better salary.

– 51% of companies say they want to raise their prices in the coming months.

However, all this sets the stage for a surprising phenomenon which is complete to convince us that economics is not a difficult and rational science as one would like us to believe.

This phenomenon is called inflationary psychology. Or how, by wanting to avoid inflation for oneself, one ends up promoting it.

What happens is very simple:

Consumers speed up their purchases (for fear of price hikes);

Employees pay to earn more (to maintain their purchasing power);

Companies raise their prices (Because they expect an increase in costs).

However, these individual precautionary measures are in fact triggers Inflation: Since money is less valuable, everyone wants more…

… And since everyone wants more to maintain the same standard of living, money is less valuable – because at the level of a family or business, no one wants to pay for inflation!

Nobody wants to see their standard of living go down. But someone will have to pay – Often the poorest Because everyone who gets excited only exaggerates the phenomenon by wanting to escape from it. Only a few will get away with it…

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Why does inflation explode?

I will not give a long presentation on the economy, do not worry … but to invest smartly, it is necessary to have an overview, even if it is synthetic.

All economists agree on these three causes of inflation.

Logistical problems and shortages during the pandemic Many businesses are shutting down and supply chains are struggling to keep up with back-to-back restrictions and restrictions. The production of goods and services has been undermined, and this unregulated production has raised costs.

Higher demand than expected : The ” Regardless The support of the economy and the recovery of the labor market led to increased spending by families, who wanted to consume more than production, which was still fragile, could give them.

war in ukraine : Energy prices are rising, and agricultural raw materials are following them because Ukraine is a major producer.

To correct the situation, some experts suggest practicing a increase control In the markets, resort to rationing time to rebalance the production chain, and continue to raise interest rates. All this, of course, while negotiating peace in Ukraine…

If you want my opinion, you shouldn’t expect that kind of thing from a state, for at least two reasons:

Organizing, even if it starts with commendable intentions, always ends up “breaking” something. It is never rigorously or properly practiced, and above all, ignoring who we areMoreover, the USA was tested in the 1970s, but without success.

– Then it led to a lot of interference, so a Increased risk of authoritarian drift… because you know that the freedoms that the state borrows because of the crisis and an urgent necessity, He often forgets to return it.

So there is no magic solution…

…and this is where inflationary psychology comes in full!

Because it will be necessary to pay, All actors want to save their skinTurkey, don’t be a farce.

This is how workers ask for their raise covered upr In the face of rising prices, households intensify their purchases (household appliances, equipment, vehicles) and firms raise their prices.

In other words: the perception of creeping inflation pushes the actors to do so Act in the direction of inflationYou want more money. Normal.

However, wage increases raise business costs, and costs are transferred to prices, The rise in prices raises fears of continued inflation So families now buy what they wanted to buy in a few months. And they will demand more money to maintain their lifestyle, and so on.

We have two harmful psychoactive effects at play: first, fever thermometerBecause the declared inflation causes high inflation… then the vicious cycle that feeds itself, because + inflation = + inflation.

Everyone knows that inflation isn’t infinite…but everyone wants to suffer from it as little as possible, and so put a coin back into the machine in the hope that their salary will rise faster than prices to buy a new washing machine. Tableware without suffering from high production costs. It’s stupid like that.

Who is Mark Schneider?

Mark Schneider is the founder ofArgo . versions, a financial publishing and investment research company. Its free newsletter gathers more than 60,000 readers each week.

since long time ago risk managerMark helps his readers Understand the internal procedures of investing in the stock market and cryptocurrency to take charge of their financial future.

Its newsletter deals with different topics: new technologies, cryptocurrencies, investment psychology or even geopolitics… with a common denominator: Understand the world around us to better manage your money.

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