Our clients may be tired of us talking about how hard it is to get the inflation "genie" back into the bottle, but this article from The Hustle provides a great explanation of inflationary psychology and inflation expectations. As consumers and businesses become more aware of inflation, higher inflation expectations are set and they act / price accordingly, making it more difficult to bring inflation under control. It is why we see such strong language from the RBA, in addition to actual rate rises, as they attempt to contain expectations.
"This cycle is kind of like a game of musical chairs.
Businesses and people know inflation will end at some point, but they want to obtain the best possible outcome before it’s over. So they race around the circle faster and faster, asking for increasing wages and sending costs higher and higher.
The deeper inflationary psychology takes hold, the harder it is to shake off and the longer the cycle continues."
Click here for the full article.
