“Printing money dilutes it’s value. More money chasing the same quantity of goods and service drive up their prices.”
Let’s say I own a bakery. So, i manufacture and sell loaves of bread every day. Let’s say I price them at 5 dollars a loaf.
Then one day the government decides to print up and give away 1 million dollars in cash to each and every citizen in the country. Now, all my customers, regular or not, when they come into my store, they’re all millionaires (including myself).
They each now have more than enough money to buy out my entire inventory for the day if they please.
Ok, but then why do I, or why should i have to, raise the price of loaves of the bread i baked to anything more than the 5 dollars a loaf I was charging just a day or two before? Why not just sell them at the old price of 5 dollars a loaf?
“Why not just sell them at the old price of 5 dollars a loaf?”
Because you are a good business man and will price your product for “what the market will bear”. If every citizen is a government enriched millionaire, you will take advantage of that. I was talking with a Kroger’s regional manager about food price increases. He said when a supplier gives them a price increase, they don’t just automatically pass it along. But they consider “consumer price sensitivity” and their competition. If the price increase is 30% but consumers would balk badly at a 30% increase, they might juts raise the price 20% so as to not kill sales.
““Why not just sell them at the old price of 5 dollars a loaf?””
The other reason you would raise bread prices is because those multimillionaires will be bidding the prices of everything you Mr. Baker has to buy, flour, bread making equipment, etc. If you don’t you’ll go out business. And that is how inflation ripples out and about.
Maybe you can keep the price at $5 and liquidate your entire daily bread inventory by 10:00 A.M. BUT I ASSURE YOU YOUR COMPEPITORS WILL NOT.