More demand might eventually result in more supply, but that can be a very slow reaction. If more people start flying, the airlines will initially just jack up prices for seats. If that increased demand is projected to be long term or keep growing, the airline might buy more planes to add routes, but that’s a long and expensive process, and they’re likely to do it just enough to keep prices high.

If more people are buying new cars, the dealers are going to tack on fees to increase their profits because they can. Eventually, the auto makers might increase production so that they can make more profit, and that increases supply could lower consumer prices.

If people suddenly decide to save their money and not fly as much or not buy new cars, there will be a glut of seats/cars, and the prices will drop as the sellers compete for the reduced number of buyers.

So that’s the whole reason the Fed is raising interest rates to try and slow inflation. The thought is that if you have to pay more money to finance a house or a car, or to get a home improvement loan, you’re less inclined to do those things, so there will be fewer buyers and more supply than demand, which will increase competition and reduce prices. It’s been working.

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.

I am not familiar with what’s happening in NZ and I don’t completely understand the payment thing. Does everyone in NZ get a basic monthly income?

As for your question about inflation. There are several factors at play so too much demand for goods and a stressed supply can cause price inflation. But I think we have mostly moved passed supply constraints… at least in the industry I work.

Monetary policy like hiking federal fund rates is designed to make the cost to borrow higher, which makes larger purchases less affordable, so you hold off on purchasing a car or a house or other items, tampering demand, so inflation goes down.

Savings? That’s not something they talk about in America too often because we are an economic that thrives on dept, but I think in other parts of the world it is the norm to always be living within your means and putting away savings.

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No, spending makes inflation rise.

Wage Price Spiral.