Do Inflationary Expectations Cause General Increases in Prices?

Do Inflationary Expectations Cause General Increases in Prices?
Igor Kisselev/Shuttestock
Frank Shostak
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Commentary

Many believe that the key cause of a general increase in prices is so-called inflationary expectations. For instance, if there is a large increase in the price of oil, individuals will start forming expectations for higher inflation ahead. Consequently, individuals will speed up their purchases of goods and services at present, thereby raising the demand for goods and services, all other things being equal. This is supposed to set in motion general price increases.

Frank Shostak
Frank Shostak
Author
Frank Shostak, Ph.D., is an associated scholar of the Mises Institute. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. He has taught at the University of Pretoria and the Graduate Business School at Witwatersrand University.