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Inflation happens when money is plentiful and goods are scarce. Here is a pertinent example:
An executive with a multi-city distributor is opening a new distribution center to support his company’s expansion. A location has been selected, and a new warehouse has been acquired. Now he needs forklift trucks, and his favorite supplier has told him that there is a one year lead time for a new truck. He would be willing to buy used trucks, but they are hard to find.
When we heard this story, we couldn’t believe it, so we started calling people. Everyone we talked with confirmed the fact that forklift trucks, storage racks and other equipment have very substantial lead times.
As our friend continues his search for the equipment he needs, do you think he cares about the price he must pay for a lift truck? Trucks are a small expense compared to the cost of the real estate, and the new warehouse will stand empty until the equipment needed to operate is in position. When he finally finds equipment, the price will certainly be higher than normal. He will pay it, because he cannot open the warehouse without forklift trucks.
That is what inflation is all about.
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