does increased consumer spending lead to higher inflation rates & why?

Answer 1

Speaking from a broad economic standpoint, yes. Prices are theoretically driven by supply and demand. If the demand becomes greater than the supply, the seller can increase the price of the item (those who can afford to pay the higher price can buy). But, at some point, the price can go up so high that most people can't afford the product, thus driving the price back down. It's free market theory. However, if the consumer is spending more for one particular product (like gasoline), it can effectively reduce the amount of dollars spent for other products (like consumer goods). That forces us into a recession, where people don't have the money to buy anything beyond their basic needs.

Answer 2

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does increased consumer spending lead to higher inflation rates & why?

Answer 3

This is kind of a trick question.

Inflation is generally defined in terms of a specific currency. Changes in the currency's value reflect the amount of currency required to purchase a basket of commodities. This can change based on the value of the currency, the value of the goods or both. Currency and goods both have prices reflecting supply and demand.

So, the answer to your question depends on how one defines "increased consumer spending." If it's defined to mean that the real value of exchange required to purchase a basket of commodities has gone up, then yes, the increase in consumer spending would reflect a scarcity and would be a leading indicator of inflation.

If "increased consumer spending" means merely that the nominal amount of currency required to purchase a basket of commodities has gone up because the supply of money is rising faster, then the answer is no, because spending would be a trailing indicator of inflation caused by a fall in the value of the currency. (e.g., the government prints a lot of money )

Answer 4

Simplistically:

YES

Increase in spending means an increase in demand. If supply is not increased at the same rate, it results in shortages/price pressures. Inflation !