The Two Effects of Inflationary Psychology
Inflationary psychology describes the behavior of consumers when they get accustomed to prices rising month after month. In such economic times, two subconscious behaviors become common.
- People buy more consumable goods than they need. They do so because they realize that those same products will be more expensive the following month. This increases demand and lowers supply. And that causes inflation to rise.
- People put off paying bills because they understand that delaying payments means they will be paying them later with less valuable dollars. This is true even when there are late-payment penalties, so long as those penalties are less than the increase in inflation.
