If your money is devalued through inflation and your groceries get more expensive, but you can still produce and sell a widget for the same price as before, do you (have to) increase the price of that widget?
Yes, inflation matters a lot, but the psychological part is significant as well (and is conveniently overlooked in basic classical undergrad economics).
A similar thing happened when the Euro was introduced in Europe in 2002: The act of changing the price tags, the confusion of consumers when showing different numbers was an opportunity to hike prices.
> If your money is devalued through inflation and your groceries get more expensive, but you can still produce and sell a widget for the same price as before, do you (have to) increase the price of that widget?
To the extent that you use the profits from selling widgets as the means to buy groceries to feed your family, yes, you have to, unless your family wants to go on a diet.
Yes, inflation matters a lot, but the psychological part is significant as well (and is conveniently overlooked in basic classical undergrad economics).
A similar thing happened when the Euro was introduced in Europe in 2002: The act of changing the price tags, the confusion of consumers when showing different numbers was an opportunity to hike prices.