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How does inflation correlate with more savings vs more spendings? (lemmy.nz)

submitted 11 months ago by [email protected] to c/[email protected]

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A recent article: https://www.stuff.co.nz/business/money/301022706/prepare-to-find-another-70-a-week-to-get-by-in-2024-asb

says: ..if households decided the worst was over and started to feel more confident about spending, it could push up inflation

But I thought it was the opposite;

More spending means more demand means more supply, which means production costs go down (due to economies of scale)… so inflation goes down?

But saving means less spending, means less demand, means less income for business, means costs go up.. so inflation would rise?

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[–] [email protected] 8 points 11 months ago

Maybe if the price per apple goes up, the grocer takes the money. He can't sell more apples because there aren't any right now and anyway there's still the same number of stomachs, so he puts it in the bank. The bank lends it out at too high interest for the farmer to borrow to plant trees on the off chance he can convince the grocer to stock more apples five years from now.

IANAE but I think the idea is high interest rates prevent supply expansion generally.