What Price Signals Are Telling Us
0What Price Signals Are Telling Us When price inflation occurs, it can be a very challenging time for everyone. In that type of environment, prices of goods and services often go up faster than wages, and the public and policymakers wish to constrain them. In other words, price inflation always tends to happen when money supply grows very quickly, but a rapid growth in money supply does not always lead to substantial price inflation. Broken Pipeline Suppose that 300 miles away, a pipeline breaks, and gasoline stops being supplied to large portions of a US state. Some people have a stronger reason to drive and are willing to pay 2x, 3x, 4x or more of the normal price to get gasoline. If the situation gets bad enough, areas of Europe could literally run out of natural gas in the winter, causing severe power outages and deaths from lack of heating during cold nights.