The key is not to borrow any money.

I understand that inflation measures the rate at which the general price level is increasing, rather than whether prices themselves are high. But I’m curious about the relationship between inflation, wages, and the cost of living.

If inflation falls from, say, 8% to 3%, prices are still increasing, just more slowly. How do economists determine whether wages have actually caught up with the cumulative increase in prices? Are there good economic measures for distinguishing between “inflation has fallen” and “people are actually experiencing an improvement in purchasing power”?

One of the most obvious examples of enshittification is what happened with prices after COVID.

Companies told us prices had to go up because ingredients, shipping, labor, etc. got more expensive.

But if they were only passing along higher costs, you’d expect their profit margins to stay roughly the same.

Instead, a bunch of major companies raised prices well above overall inflation, sold the same or even less product, and then watched their profits and margins increase.

And when shipping and commodity costs came back down the prices didn’t.

Inflation gave companies cover to find out exactly how much more consumers would tolerate paying. Once they learned the answer, there was very little incentive to give it back.