If inflation is 7% this year and I raise your $100,000 salary to $107,000, an inflation rate of 2% next year doesn't mean I'm overpaying you by $5,000. It means that I once again need to give you a 2% raise for you to get the exact same amount of value for your labor. The inflation rate would need to rubber band to a negative rate for anyone to shed tears for the employers.
If your landlord doesn't raise rents, he's getting a paycut.
If your utility company doesn't raise rates, they're getting a paycut!
If the grocer doesn't raise prices, he's also getting a paycut.
But now we're back to you. Everyone else has raised prices to compensate so now you've got to charge more for labor again which eats into their margins and the vicious cycle continues. Sooner or later, someone will have to blink or this will continue to get even further out of hand.
One can argue that the higher prices (eg by landlords) were due to increased demand with supply that couldn't keep up. Still, this doesn't mean that they are permanent, since supply can improve, or demand can return to normal, stopping the inflationary cycle. If you assume that demand cannot go down (eg for high perf chips, not land, which more and more industries utilise now), then I can't think of a reason that supply can't go up in the long term (unless the supplier is profiteering).
Raising prices due to inflation is not particularly different than trying to raise prices for any other reason. What limits you doing it more is that you can't.
So inflation is generally "eaten" by the least powerful actors in the system - those with the least ability to raise prices.
In a loose sense, all pricing is a kind of negotiation.
Inflation is messy and price updates take time to propagate due to stickiness, inertia, contracts, negotiation costs etc. Also psychology. It is very helpful if others in your industry announce they are raising prices...
Many consumer facing businesses e.g., supermarkets, utilities, consumer SaaS can in theory raise prices instantly (subject to market forces, public opinion, regulation, etc).
Workers on the other hand, need to switch jobs or wait for reviews. B2B companies and suppliers may need to wait for contract renewals.
After the delays and messy details are taken into account what's left are market forces. This looks a lot like "who has the upper hand in pricing".
New taxes are similarly complex and it is often not clear who will be able to pass them on and who will ultimately absorb them.
Deflation would probably cause lots of layoffs, tears would be shed for many.
I saw many classical economist types denying that printing trillions of dollars and flagellating the global supply chain would lead to inflation. They were proven very, very wrong.
We had CPI-measured deflation as recently as May 2020, were we on the gold standard then? Or were there velocity of money explanation for the deflationary activity?
A nitpick: these are contradictions in terms. Chaotic systems are precisely those systems which are not predictable in the long run. Perhaps you mean stochastic?
But it's like the weather. We can predict long term climate reasonably accurately, but we can't predict next week's weather.
> But it's like the weather. We can predict long term climate reasonably accurately, but we can't predict next week's weather.
No we can predict medium term (decades) climate reasonably but over even longer timescales even general predictions about climate can break down (centuries or millennia), as is the nature of chaotic systems.
This is true as well of economic "laws" and why I agree that economics is chaotic. Those laws that hold at the millisecond level are different than those that hold at the second level, which are in turn different on the time scale of years, which are different from those of decades, and in turn centuries and millennia. There are general patterns whose efficacy and predictive ability are more resilient than the rest but those too are eventually worn down by the relentless march of chaos.
Consider "A implies B". That does not mean "B implies A".
Deflation is much worse than inflation, and quite difficult to actually make happen, so you don't need to worry about that.
In fact even steady, regular, inflation is not bad, but employers just need to understand the need for inflation based increases for all staff every year. Employers in the US are not used to that, and have been generally slow to keep up, but will eventually figure it out.
And yes, there won't be the same number for all, so expect plenty of cherry-picking example articles for years to come. And generally workers (and customers) will be losers, because, well Capitalism.
In most countries there is stable, regular, inflation and somehow they cope. The US has some catching up to do, but they'll figure it out. Albeit that the impacts of naked capitalism will be more pronounced there.
So perhaps you are suggesting that you cannot practically reduce prices because you become addicted to the extra income?
Ultimately inflation works by driving prices up. So the extra $45 will ultimately be made up on your income side, basically by you putting your prices up, thus fueling the cycle. Inflation on basic necessities like energy and food have more knock ons than non essentials.
Ultimately the fuel vendor is covering not just the increase in fuel to him, but also the increases needed for his staff.