May 15, 2020,10:17am EDT
By Chris Carosa
Originally posted here.
It’s more than just toilet paper. Any common sense understanding of the madness of crowds suggests random acts of overreaction can cause irrational demand. This, in turn, often leads to shrinking supply.
High demand? Low supply? If you remember your ECON 101, that formula can lead to only one conclusion: price inflation.
Will inflation define your near future and what does that mean if you’re retired or nearing retirement?
The April 2020 Consumer Price Index Report from the U.S. Bureau of Labor Statistics offers mixed messages. For all the talk of shortages and hording, the CPI declined 0.8 percent in April (on a seasonally adjusted basis).
That might seem counterintuitive, but you have to remember what happened when you stopped driving your car: you also stopped buying gas. And you were not alone. The gasoline index fell more than 20%. That heavily influenced the entire index.
It wasn’t just gas. What else did you stop buying? Clothes? Airplane tickets? Hotel rooms? The Supply and Demand equation can go both ways. When demand falls, the theory suggests prices should also fall. Indeed, that’s what we saw in April.
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