I'm fully utilized, right? I have 100 utilization.

Filesystem Utilization Viewer

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

Low utilization, prices will decrease.

But, in general, prices will go up when you have high utilization, right?

Low utilization, you have kind of the opposite situation.

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.

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

Capacity utilization is driven by demand.

This orange line represents capacity utilization.

He's only running at 25 utilization.

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

So those are the two side effects of high 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.

On top of that, if they get close to fully utilization,

And capacity utilization had really preceded that.

They wanted to get to nearly 100 percent of the energy utilization.

In a service based economy, the best measure of utilization really is unemployment.

My answer is, just watch the capacity utilization numbers.

Capacity utilization drives inflation. We can all buy that.

Let's say it has a slight impact on utilization.

So, as long as we have a pretty high utilization and people debate on what is the level of utilization in lot of industries where it makes sense to raise prices.

A couple of days ago, I made these videos on cupcake economics, where I talked about what happens when the cupcake factories have high utilization or low utilization.

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

The world did not come to an end as a result of utilization of agricultural technologies.

If all of us were running at 100 utilization Actually, let's do that scenario.

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

So it's 50 utilization and then, my return on asset is my operating income divided by my initial investment, right?

So you have the situation now, where you have low utilization.

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

Or if they see that fully utilization is down the road,

That when you have low utilization, it's everyone's incentive to lower prices.

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

There will always be better economies resulted from advancement, and utilization of technologies that just makes sense.

And when people say low utilization, I imagine idle factories, and when high utilization, I imagine factories that are running at three shifts and things are moving feverishly.

And, likewise, if you have very high utilization, it's hard to avoid inflation.

But that's a good level. You want to be at around 80 utilization.

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

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.

But this orange I'll do it the same color, this orange shows capacity utilization, and the starting date right here, I think it was 1967.

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.

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