Market Perspectives

Inflation, Powdered Milk & Toothpaste

As an undergraduate student I recall my macroeconomics professor describing inflation as toothpaste, “Once it’s out of the tube, it’s extremely difficult to get back in.” Every time I brush my teeth these days I think of Professor Sims and the point he made; should inflation get out of control it becomes very difficult to rein in. Inflation in raw materials can create more inflation as higher input prices force higher output prices, which in turn leads to wage increases as workers demand higher pay so they can afford higher goods prices. Manufacturers then further increase prices to protect their profits and make up for higher labor costs. And so on.