It is a simple decision if you own a business when faced with increased demand... Do you produce more? or Do you raise prices?

We now see a situation where the markets are expecting higher inflation. They expect prices to rise. But why not just increase utilization of capacity to produce output to soak in the extra demand dollars.

If demand increases, a firm can either increase production or raise prices. When capacity utilization is low, a firm prefers to increase utilization of capacity rather than raise prices... and capacity utilization is currently quite low.

Low capacity utilization can be understood as prices being too high. It is akin to a monopoly production schedule where less is produced at higher prices. There is evidence that we have that type of scenario more so now in the economy. In such a case, firms are more apt to increase production while holding prices steady if demand begins to increase.

Capacity utilization is understood as the ratio of output to full-capacity output. It is important to understand what full-capacity output is... It is the point at which average cost (unit cost) of production begins to rise as production is increased. Average cost includes Fixed and Variable costs.

So if there is excess capacity like we see now, imagine two competing firms faced with increased demand. One decides to raise prices, the other decides to increase production. Who do you think would win in most cases? Well, if average costs do not rise, the firm that just increases production would gain market share and good profits.

Basically, we have low capacity utilization... So when people forecast increased demand from Trump's projected fiscal stimulus and deregulation, Why on Earth would anyone foresee stronger inflation coming? It makes more sense to forecast higher capacity utilization which would eventually reach a saturation point to cause inflation... but capacity utilization is so low right now, that we are quite a long way away from that saturation point.

Basically, I do not see high probabilities of inflation anytime soon. One needs to keep their eyes on capacity utilization.