Why are prices rising so fast now?

Price increase refers to the general increase in the overall price level. Rising prices are one of the manifestations of inflation. The rise in the price of some commodities, such as beef or rent, is not inflation. Because the prices of some commodities go up, while the prices of other commodities may go down, the two cancel each other out. Only when the prices of various commodities and services generally rise can the purchasing power of money be reduced.

According to the new Keynesian theory, there are three main reasons for the price increase:

First, demand pull.

This paper analyzes the causes of price increase from the perspective of total demand. The reason for the price increase is that the total demand increases too fast, the total supply is insufficient, or the demand for goods and services exceeds the supply that can be provided at the current price, so the overall price level rises. Total demand includes consumer demand, investment demand, government expenditure and net export.

Second, supply promotion.

Analysis of the reasons for price increase from the perspective of total supply. Supply is production. According to the production function, production depends on the cost. Therefore, from the perspective of total supply, the reason for the price increase lies in the increase in costs. The increase in cost means that only when it is higher than the previous price level can we reach the same output level as before, that is, the total supply curve moves to the upper left to reduce national income and raise the price level, which is the cost-driven price increase.

Third, mixed supply and demand promotion.

Combine the total demand with the total supply to analyze the reasons for the price increase. The root cause of price rise is not a single total demand or total supply, but the result of the joint action of the two. If the price increase is driven by demand, that is, the existence of excessive demand leads to price increase, which will increase wages, so the increase of supply cost will lead to cost-driven price increase. If the price increase starts from the cost, that is, the increase in cost leads to the price increase, then if the total demand does not increase correspondingly, the increase in wages will eventually reduce production and increase unemployment, thus stopping the price increase caused by the cost. This price increase will only last if the total demand increases due to the cost.

Tips: The above information is for reference only and does not represent any suggestions.

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