 My name is Isabella Weber and I teach economics at the University of Massachusetts Amherst. When inflation first started in 2021, economists were basically divided into two camps. Camp transitory and the so-called camp stagflation or camp let's hike interest rates yesterday. And I would say that the camp transitory probably underestimated the ripple effects that would come from inflation and camp stagflation kind of only saw one very blunt and ultimately pretty brutal kind of instrument which is an instrument that is actually based on the assumption that you have to create suffering in the economy. You have to throw people out of work to get down inflation. It's like as if you had a fire in the kitchen and one set of economists is saying don't worry sooner or later the fire will go out and the other set of economists is saying we should really flood the whole house and I would say well somehow we need to be able to do better than that. We need to be able to put out fires locally rather than being divided between wait and see and creating really major harm to people's lives. Reacting to these price shocks firms did not absorb these costs and say like oh energy prices have gone up well unfortunate now I'll be a little bit less profitable but they actually found out that these cost shocks can coordinate price hikes. They did not have to be worried that if they started to increase their prices their competitors would be doing something else and hence they would be losing their markets here but they kind of had an implicit agreement almost like a cartel just that it's not a cartel but it's coordinated by this shock that this is the time to hike prices. If you imagine you are going to the same coffee shop on your way to work every day and you know the coffee costs four dollars and you show up the next day and you find oh suddenly your coffee is no longer four dollars but eight dollars you would go these people were nuts like I used to like this coffee shop but now I really think they're kind of cheating me right and you might switch your pattern of behavior and say I'm no longer gonna buy my coffee at this coffee shop I'm now gonna find another source of coffee but if the guy in the coffee shop has been telling you that their rent is about to go up and each time you went into that shop you were talking about the problem of rent increase then you go to that shop the next day and you see that the price went up um let's say it didn't double but it went up by 50% or something you would be like oh yeah make sense of course they are really in trouble they now have to pay this very high rent I'm really glad they could renew their lease in their selling business right and you might be much more accepting um of this price increase this is to say prices are also social relations and firms are navigating these prices as social relations with their customers and if people are watching the news and they are seeing on the news the war in Ukraine creates massive shock on the grain market and they hear about increasing grain prices pretty much every day and they go to the baker and they find that the price of bread has gone up they will go like yeah of course make sense I know the price of grain has gone up price of flour has gone up price of bread will go up and they have no way to judge whether the price increase is actually in proportion to the increase in costs or whether this is disproportionate or whether this is outrageous from the perspective of the customers it's very hard to judge and if there is a context that makes these price increases appear reasonable there seem to be much more willing to pay these higher prices than they would have been if if there's no such larger context