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

[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."

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.

If there were a lack of resources for chip production, factories would be shutting down. However, the factories are operating, yet their production capacity is insufficient to meet demand. New factories cannot be built quickly, nor can the rate of production be increased.

[lavaai]

If there were a lack of resources for chip production, factories would be shutting down. However, the factories are operating, yet their production capacity is insufficient to meet demand. New factories cannot be built quickly, nor can the rate of production be increased.

No, factories don't shut down because resources are scarce, they compete with other factories for a pool of resources that is not as voluminous as before.  The market-physics of post-industrial technology is a novel and special-case when we consider the "discrete" jumps in technological progress.  For example, a factory that made iPhone 1 does not easily lend itself to making an iPhone 18.  But the fundamentals for resources, "unlimited wants meeting limited resources," competition and so forth, remain unaltered.

Yes, there is a spool-time to getting factories online and up-and-running.  This has always been the case, but in today's age the requisite precision-engineering required to manufacture chips and the like requires years of development and the blueprints then require years of diligent labor to bring to life.  Compared with the turn-of-the-century and the early industrial era, this time is greatly multiplied, depending on what sort of product we are talking about.  The more sophisticated and intricate the technology or device, the longer this lead-time.  So it moves in almost "discrete" jumps or steps, but overall the phenomena are economically the same or congruent.

The multitude of factors feeding into this situation make a system:

Resources are harder to obtain (rare earth minerals).
Factories take years to design and come online (time, and delay).
New devices supplant old, creating obsolescence.  "Obsolete" devices are less expensive but also less in-demand / less-desired.  Which leads to reduced price and reduced production.
New devices have increased demand, and longer lead-times, which causes something similar to congestion, but it's more like the river is getting split into many waterways or many tributaries.  The flow gets thinned to a trickle, but does not stop.
All these factors feed in to this situation, it's not one or the other, it's many.   

Aggregate demand is on the rise, but specific-demand moves like a spotlight.  The focal point for what phone you want shifts depending on the year, the season, the model, your funds, and so forth.

Not to mention, most structural and infrastructural development is shifting to digital products instead of brick-and-mortar buildings and "fall-on-your-foot" GDP items.  This shift means there is more collective-demand (a subset sum of specific-demand s) in the tech sector.  Which means more competition, more competing priorities, and more indirect demand for the resources that make those technological devices and advancements possible.