Depending on who you talk to, inflation is either a rapid increase in the cost of goods and services or a surplus of currency in the market.
If inflation was based on cost or pricing, then price controls would work to freeze inflation. However, all that price control does is devastate a person’s business and starve their customers.
The reason for this is that costs are controlled by a few market factors: Demand for goods, Availability of goods, Cost to produce, Cost to deliver, Cost to support. Cost to market is wrapped into production cost for this essay.
If you look at production, delivery, and support, you will see that those three are impacted more than once in making a product available. Let’s look at Gas. To pull the crude oil from the ground, one needs to drill into the ground, this requires labor and equipment. This means that laborers have to be transported from their homes to the job site and back. The equipment has to be built and transported to the job site. The laborers have to have proper work clothing to do their job, and they have to be fed so they cannot work for free. The equipment has to be built, which means fuel has to be burned to produce power to run the machines to make the equipment. Also, there are laborers to run the machines to make the equipment for drilling. Those laborers also have to be paid so that they can be transported, clothed, and fed to work.
But to make the equipment, someone needs to provide raw materials, which also take fuel, labor, and other equipment to do. How about the equipment to make the mining equipment to get the raw materials. Do you see this recursive cost?
People say that commercial products are not taxed. Really? Capital gains tax, corporate income tax, employer contributed payroll tax, employee income tax (Yes, I count this against the cost of goods, because the payroll comes from the employer.) Tax against operating costs, such as electricity, and non-resale equipment. These things add up. If you trace the taxes collected all the way to their point of origin, you will see that your taxes paid on anything can be up to 50%, but average around 18% to 28%. So you are being overcharged already, but this plays into inflation.
You can see the short-term patch to inflation if it was really cost, would be to suspend government and their taxes.
So what is inflation? That is as simple as asking what is the market and how does supply and demand work?
In a healthy market, a buyer will declare they need a specific thing. However, they know how much they are willing to pay for that thing. A seller will make, acquire, or in other words, supply that thing if they can sell it at a price greater than their cost. Why greater than their cost? It is because they want to profit from their effort and time. That profit is split between the cost to do business and the profit that they pay themselves to do things like clothing, feeding, and housing themself.
However, if there is more than one buyer for a thing, the smart seller will sell to the buyer who will pay the highest price for the thing. Now, this thing’s price just went up. If that buyer is a middleman, such as a retailer like Amazon, then they are also going to mark up the product to sell to their customer. And that seller, who was a buyer, also has to provide a profit.
The most I can charge for an item is what any buyer is willing to pay. However, if a buyer had a sudden influx of cheap money, then they will be willing to pay more for my product and price out their competition. Now that I have excess money, I will find that several other people have also come into this influx of cash, so the items I need to run my business are now being priced higher, as there is more money in circulation, and each buyer is trying to outprice their neighbors to get what they demand. Suddenly, I need to set my minimum price to do business higher, to make sure that I turn a high enough profit to buy from suppliers at higher prices. This becomes a runaway operation until the influx of cheap cash stops.
Since 2018, 50% of all cash that the US has ever printed was released into the market. That means we are now at a massive influx of cheap cash, which is killing our price stability.