On Inflation Renato Purchio


Imagine that you live in a world where there are 3 inputs that are likely to increase their price:

  1. Labor
  2. Wood
  3. Nails

If only the nail prices have increased, how should you react to the fact?

  • Deny: Will not buy more nails and stop working until prices return to the previous value. Hmm, better not!
  • Save money: Reduce the number of nails used and take the risk of the house falling down.
  • Replace: Swap for screws that, depending on the price, would not be an equivalent replacement. Come on arm!
  • Remark: Transfer this cost to price, which is the easiest and not always the best way. Your customer will squeak!

Inflation, although many cannot see beyond the definition of a variation in the cost of inputs, it also has to do with the cost of the process. If the process of placing a nail in the wood is done more efficiently... and in this case faster and with less loss, other costs can be reduced.


Leave a Comment