Where does inflation really come from? Have you ever asked yourself that? As per economic theory most people would believe that inflation comes from increased wages, therefore more people have a greater abundance of available spending money, thus there is more demand in the marketplace for the same amount of supply.
But I would submit to you there is a more insidious type of inflation, and permit me a few moments to explain.
Some inflation comes from increased regulation on businesses.
This can happen from licensing requirements of a certain type of service business or it might come from increased accounting standards, requiring business owners to hire accountants and lawyers to make sure that they cross all the T's and dot all the I's, and everything is done as per the new rules.
That increases costs, those costs are passed to consumers in higher prices of goods and services.
Then there are safety regulations, some of that makes sense, and others are put into place by Senators and Congressmen where one Corporation or group of companies lobbies against another, or where unions want increased regulations so they get paid the same amount for doing less work.
Either way all these types of rules and regulations which are put forth by government increase the cost of doing business.
Those costs must be passed onto the consumer otherwise the business cannot make a profit, and therefore cannot continue, or expand.
If those businesses don't expand or fail to make a profit, they will go out of business.
This will leave fewer participants in the marketplace, and therefore decrease supply for the current demand.
If you look at the supply and demand curve in any industry we all know that that means the price will go up, thus we have inflation, even without raising the payroll or having increased wages.
In fact there was an interesting article in the Journal of Commerce on February 24, 2011 titled "Avoiding the 'Hour-Mageddon'" by William B Cassidy, which discussed the new hours-of-service rules which will be taking effect in the future.
All this DOT regulation is causing concern amongst the trucking, logistics, and shipping industry.
It also has wholesalers, manufacturers, and retailers worried.
This will cause wholesale inflation, for everything they ship by truck, it also gives a leg up for the rail industry over the trucking industry.
With less competition the railroad can also raise their prices, and therefore everything you buy, and everything you see, everywhere you go will have a higher price tag.
As prices go up we have inflation.
The same thing would happen if OPEC lowers its output, thus lowering the supply, while the demand remains the same - we will have higher prices and inflation.
Any time there are increased transportation costs that means all the goods that are bought and sold and shipped by truck will increase in price slightly.
But it's not just the end product that increases in price, it's all the components that were shipped to the factory before they were assembled into the end product and then shipped to market.
Therefore the wholesale inflation of each component of whatever it is that you bought comes with an inherent extra added on tax caused by legislators in Washington DC increasing regulations on business.
It's too bad that most people do not understand this, otherwise they wouldn't be calling for so many regulations on businesses.
Indeed I hope you will please consider all this.