Authored by Lance Roberts via RealInvestmentAdvice.com,
Inflation risk has been a significant topic of discussion in the mainstream media for the last few years. Such is unsurprising given that inflation spiked following the pandemic in 2020 as consumer spending (demand) was shot into overdrive from stimulus payments and production (supply) was shuttered. To understand why that occurred, we need to revisit “Economics 101.”
“In economics, inflation is a general increase in the prices of goods and services. Changes in inflation are a function of fluctuations in actual demand for goods and services (also known as demand shocks, including changes in fiscal or monetary policy or recession), changes in available supplies such as during energy crises (also known as supply shocks), or changes in inflation expectations, which may be self-fulfilling. Note that supply and demand are key facets of the inflation equation.
Basic economics states prices will be set at a level where the supply of goods or services meets consumer demand.”
The economic illustration shows this basic principle taught in every “Econ 101” class. As noted, in 2020, inflation was the…
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