Capacity utilization is driven by demand.

This orange line represents capacity utilization.

And capacity utilization had really preceded that.

My answer is, just watch the capacity utilization numbers.

Capacity utilization drives inflation. We can all buy that.

So high utilization of capacity, it leads to prices increasing.

So we're all tapped out, we're at 100 capacity utilization.

And the traditional notion of capacity utilization, and this is what my brain does when someone mentions it, is I think of industrial capacity utilization.

And notice, it was preceded by an uptick in capacity utilization.

And if you go a little bit lower, it tells me capacity utilization.

And the inflation really started going once capacity utilization got into the 80 range.

As we said in the last video, the orange line is U.S. capacity utilization.

So this is more recent, where we see that capacity utilization started falling off.

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But the interesting thing, just falling into the cupcake economics and this whole notion of capacity utilization, is that inflationary periods are always preceded, at least all the data I have, by increases in capacity utilization.

So the point I want to make here is capacity utilization really is the driver of inflation.

And going back to where we started this video, in terms of capacity utilization and what that might do to prices, this tells us that labor utilization is

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So, if you saw right here, wow, capacity utilization is starting to go up and actually, another interesting thing is to see what threshold of utilization starts to trigger inflation.

It isn't so much the money supply, although the money supply will have an effect, it's really capacity utilization.

So that dynamic that we've been talking about, capacity utilization falling off, because we essentially had a demand shock.

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I've done a bunch of videos now on inflation and deflation and how they can be impacted by capacity utilization.

And if you think about it, industrial capacity utilization, it matters, but it matters much more to manufacturing based economy.

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So the orange line is utilization. Up here we had like 90 utilization.

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Low utilization, prices will decrease.

So over here, you say, OK, when inflation really started turning around, we were at a capacity utilization of roughly 83 , 84 right there.

So up here this is 90 utilization and then down here this is 70 utilization.

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