[nostrademons]

It's not really self-correcting. When a consumer spends their money at inflated prices, it doesn't disappear. It goes to the business owner, who just received inflated prices for their goods. They, in turn, usually need to pay their suppliers, who can charge them inflated prices and make all their windfall profits disappear.

In my view, the main problems with inflation are:

1. It introduces a transaction cost tax. Every time a business raises prices, they need to spend time re-printing menus, marketing materials, websites, etc. They need to spend time renegotiating contracts. They need to re-figure their cost structure, and see if it still makes sense to use the same suppliers.

2. It disincentivizes long-term investment or planning over short-term consumption. If money's going to be worth less later, spend it now, regardless of whether you need what you're spending it on. Any long-range plans or savings will likely be invalidated by changing cost structures anyway.

As a concrete example, in times of high inflation the rational thing for an employee to do is to completely ignore their actual work and spend all their time focusing on getting a new job. Existing employees usually fall behind inflation, because they aren't actively negotiating their labor contracts and usually have no negotiating leverage anyway. The folks who make it up are those who job-hop. There is some employer out there willing to pay more than your current one; go find them, ask for 20% more than your current salary, and reap the windfall.

But if everybody does this, no actual work gets done, exacerbating any supply shortages. People become so incentivized to chase higher dollar values that they don't pay any attention to what those dollars represent.

[galaxyLogic]

> It goes to the business owner, who just received inflated prices for their goods. They, in turn, usually need to pay their suppliers, who can charge them inflated price

The first business receiving inflated prices does not really affect what their suppliers are charging them does it? When a business makes more money and if there is competition they can afford to sell at a lower price and still make profit. And they can invest in making production cheaper which will eventually decrease prices, one could think.

Good points about why inflation is bad. I was just wondering if it is self-correcting problem then it can not be very bad. It seems like a complicated problem. Except supply-side inflation is easy to understand.

[nostrademons]

It does affect them, but in non-uniform ways. Basically if you are the only one of your supplier's customers that is making more money, you can pocket the windfall as profits. If all of your supplier's customers are making more money, your supplier raises their prices to capture that (modulo the existence of their competitors that might compete to hold prices down). If some of your suppliers customers are making more money and some aren't, or if your supplier has competitors that are willing to underbid them, you split the difference.

Take a look at Bay Area home prices & inflation for a consumer example. When only startup founders were making multi-million-$ payouts, the price of homes remained reasonable. When everyone started making multi-millions, the price of homes rose to multi-million-$ levels.

Inflation, by definition, means that everybody or at least a large segment of the population has more money, so it's closer to the second scenario. The non-uniformity of competition dynamics is part of why some people reported 50% raises in 2021 but other people got nothing, though.