inflation

[fizz]

Why do prices and wages go up? Wouldn't it be simpler if they just stayed the same?

[simonjp]

It's a vicious circle. Because the price of living has gone up, workers demand higher wages. To pay for this, companies put their prices up, which in turn increases the cost of living.

[gwatkin]

Didn't the commies try that?

[Paulc]

Supply and demand.... Company makes product Product becomes popular Company becomes successful Employee becomes worth more - pressure on wages (inflation) Employee disposes of more income - puts more money into the economy, buys imported goods, borrows more, more money chasing fewer goods (inflation) Employee demands higher wage (inflation) Employee buys bigger house - raises house prices (inflation) Adam Smith mentioned the term "the invisible hand of the market"...it always sets the going rate for a product or service. Eg. the Russian rouble used to be artificially linked to the dollar 1 for 1 but when the Russian economy was opened up the market found its true value.