The real story behind Deflation and what da fuck it is

[Creeper0]

Inflation is always on the rise, but it is controlled. If there is a massive deflation, companies will either have to cut wages or lay off workers. No one, including you, will want to accept a pay cut. Every employee expects his or her salary to increase, but a deflation will force employees to cut wages.

Even a massive deflation can cause losses to businesses that are enough to destroy the economy. Inflation and deflation tell us about the price level of a country, and moderate inflation is beneficial for a country's economy. If production increases, your economy will be strong, but there is no obligation that a deflation will occur.

[lavaai]

"that's not cost-push inflation...."

"demand induced inflation...."

"supply-driven price inflation...."

The point is that none of those are inflation at all.  They are increases in price.  It has become mainstream to say any upwards movement in price is "inflation" which is not the classical nor traditional description of inflation.  These should not be referred to as inflationary mechanisms at all.  Only increases in monetary supply are inflative.  Prices increasing on their own due to other mechanisms are just price increases, not price inflation. 

[safar1980]

The microchip market is currently experiencing cost-push inflation, which is even jokingly referred to as "chipflation."

This is a unique example of cost-push and demand-pull inflation in the IT market. Equipment manufacturers are forced to buy chips at any price, and the production shortage will continue for several more years because contracts have already been signed for non-existent products.

I get where you're coming from,; this mainstream idea that any increase in price is "inflation" but as I said in my previous reply, labeling any upwards price movement as inflation conflates and obscures whether it was a change in the supply of money or a change in the supply of goods that is associated with that change.   This is why I think the mainstream framing that has departed from the Austrian school of Economics' working definition of inflation is to be eschewed, shirked, and avoided: it muddles the picture significantly.  Inflation has become a modern buzzword that means "things are more expensive" but historically and classically it exclusively meant the monetary supply was increasing at a rate more rapid than the increase in goods/technological advances.  Sure we can say off-hand things such as "chipflation" to describe that chips are more expensive now, but that is due to a decrease in the supply of resources for chips relative to the ongoing increase in monetary supply.  Supply of money still outpacing supply of chip-resources.  Chip-resources are incrementally more scarce, more challenging to source, and more competed over for component-assembly.  It's a combination of both factors.

If you go to a party and there are many women, for men this is something desirable.  If the number of men increases significantly it becomes a sausage fest.  If the number of women decreases significantly, it becomes "slim pickings."  The headcount ratio can come out identical, but the makeup of the room is completely different, and so is the diagnosis.  That is exactly the error with calling everything inflation: the math matches, the situations don't.

I now understand your perspective: according to the Austrian School of Economics, inflation is linked to an increase in the money supply, and the school rejects concepts like cost-push and demand-pull inflation.
How would the Austrian School assess the phenomenon of "chipflation"? It is a paradox: the cost of chips is rising, yet demand for them is not decreasing.

[lavaai]

I now understand your perspective: according to the Austrian School of Economics, inflation is linked to an increase in the money supply, and the school rejects concepts like cost-push and demand-pull inflation.
How would the Austrian School assess the phenomenon of "chipflation"? It is a paradox: the cost of chips is rising, yet demand for them is not decreasing.

In the case of so-called "chipflation,"  even the Chicago school would agree with the Austrian school that the rising cost of chips with increasing demand active at the same time is a result of increased-demand and resource-scarcity.  The resources going in to making chips are harder to source and are more rare, it takes bigger stronger extraction equipment to go deeper and farther from the known frontier to get the rare earth metals/minerals, and on top of that, the computing needs/voracity/hunger are at an all-time-high meanwhile still growing.   It's not inflation it is simply resource-scarcity [differential in availability] driving up resource price number, with demand also growing at the same time.   More thirsty people + less fresh water , to use an analogy, has a similar ~multiplicative effect on "price."

[safar1980]

I now understand your perspective: according to the Austrian School of Economics, inflation is linked to an increase in the money supply, and the school rejects concepts like cost-push and demand-pull inflation.
How would the Austrian School assess the phenomenon of "chipflation"? It is a paradox: the cost of chips is rising, yet demand for them is not decreasing.

In the case of so-called "chipflation,"  even the Chicago school would agree with the Austrian school that the rising cost of chips with increasing demand active at the same time is a result of increased-demand and resource-scarcity.  The resources going in to making chips are harder to source and are more rare, it takes bigger stronger extraction equipment to go deeper and farther from the known frontier to get the rare earth metals/minerals, and on top of that, the computing needs/voracity/hunger are at an all-time-high meanwhile still growing.   It's not inflation it is simply resource-scarcity [differential in availability] driving up resource price number, with demand also growing at the same time.   More thirsty people + less fresh water , to use an analogy, has a similar ~multiplicative effect on "price."

I don't see a problem with resources. The chip shortage is due to factories being unable to produce the required number of chips because data centers are buying up all the production. Building a new factory to produce 3 nm chips will take more than five years, by which time the technology may be obsolete.

[MRY]

I now understand your perspective: according to the Austrian School of Economics, inflation is linked to an increase in the money supply, and the school rejects concepts like cost-push and demand-pull inflation.
How would the Austrian School assess the phenomenon of "chipflation"? It is a paradox: the cost of chips is rising, yet demand for them is not decreasing.

In the case of so-called "chipflation,"  even the Chicago school would agree with the Austrian school that the rising cost of chips with increasing demand active at the same time is a result of increased-demand and resource-scarcity.  The resources going in to making chips are harder to source and are more rare, it takes bigger stronger extraction equipment to go deeper and farther from the known frontier to get the rare earth metals/minerals, and on top of that, the computing needs/voracity/hunger are at an all-time-high meanwhile still growing.   It's not inflation it is simply resource-scarcity [differential in availability] driving up resource price number, with demand also growing at the same time.   More thirsty people + less fresh water , to use an analogy, has a similar ~multiplicative effect on "price."

The shortage of minerals along with increased computing consumption could actually be the source of the entire problem. Companies have to utilize expensive equipment to mine increasingly rare materials from the earth.

Increase in the cost of the pure element occur due to physics rather than money. In the same way that the lack of water is scarce among a group of thirsty people, the natural increase in price takes place here as well.

[blockman]

The easiest way to understand it is the economics of the law of supply and demand.

Inflation is always on the rise, but it is controlled. If there is a massive deflation, companies will either have to cut wages or lay off workers. No one, including you, will want to accept a pay cut. Every employee expects his or her salary to increase, but a deflation will force employees to cut wages.

For some countries, they can control inflation because they have the resources in doing it and they can sustain their own economy. But for those countries that keeps on importing and they don't have the resources, they rely on other countries resources and so if they are hit with inflation that creates a domino impact and they're all affected.

The easiest way to understand it is the economics of the law of supply and demand.

Even a massive deflation can cause losses to businesses that are enough to destroy the economy. Inflation and deflation tell us about the price level of a country, and moderate inflation is beneficial for a country's economy. If production increases, your economy will be strong, but there is no obligation that a deflation will occur.

Also tells in general the kind of governance and leadership that country has.

[Unknown Op]

If the prices are falling, they come from different direction, when money supply stays stable, where as the production and supply increase, prices can fall because the goods have become much more abundant. When the prices become high that is because the money supply increases but also because the production falls, energy becomes more expensive, supply chain is disrupted and demand increases compared to the supply. Similarly, broad deflation does not mean that the increase in this supply of goods occurs if demand and the money supply are also growing. Both situations cannot be treated as equally positive. If the deflation is supplied driven it can lead to higher productivity and stronger purchasing power, whereas deflation related to money contraction comes with weak demand, failing business revenues and unemployment