Why Do Inflation Rates Go Up When Everyone Is Talking About It?

Imagine you and your friend both want to buy the same toy. If you think it will cost more tomorrow, you might buy it today so you don’t pay extra later. This is like how people act when they expect inflation, they spend now instead of waiting, which makes prices go up faster.

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Examples

Your friend buys candy now because she thinks it will be more expensive tomorrow.
Workers ask for a raise today because they expect their rent to go up next year.
You buy a new phone now instead of waiting, thinking the price will increase later.

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Categories: Economics · inflation· economics· behavioral economics