Even though it sounds strange is true! Under an inflationary period consumers can help to increase the level of inflation, this is due to uncertainty.
People being afraid of a bigger increase on prices will start consuming more - stocking products - than what they regularly do, thus increasing prices even more.
Are consumers aware about this effect? Probably not but no one will like to be the one that will have to pay a higher price on the future or suffering cause of a lack of products in the market.
Now, try to imagine this situation under hyperinflation, prices will run out of control very fast and stock will disappear from the market.
Another reading can show us that speculation can appear from two different points of view:
a) Producers increasing their prices cause of knowing an excess of demand will be present.
People being afraid of a bigger increase on prices will start consuming more - stocking products - than what they regularly do, thus increasing prices even more.
Are consumers aware about this effect? Probably not but no one will like to be the one that will have to pay a higher price on the future or suffering cause of a lack of products in the market.
Now, try to imagine this situation under hyperinflation, prices will run out of control very fast and stock will disappear from the market.
Another reading can show us that speculation can appear from two different points of view:
a) Producers increasing their prices cause of knowing an excess of demand will be present.
b) Pure speculators that will buy now to sell when scarcity gets into the economy.
So, next time an interesting level of inflation gets into a country things could be think twice before the demand is increased and may be some type of government intervention would be welcomed!
Till my next post!
Prof. Lic. Fernando Julio Silva, MSc.
APRIL 2009
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