Anecdotally, I suspect today's inflation is caused by a couple factors.
1 Not enough Housing (where people want and NEED it)
2 Global politics exacerbating energy shortages
3 Insufficient supply (generally) for demand
3 is really driven by 1 and 2, but the pandemic also had a hand in creating it. For service industries there were a lot of short term layoffs; and workers are extremely reluctant to return to jobs that don't make economic sense for them, and professions they've moved away from.
2 & 1 Regulatory changes to make it easier to build within approved project profiles would really help. The US should adopt Japan's style of area zoning and require that nation-wide (though States and more local areas should still decide which areas are zoned what). As would changes that make ALL types of energy production easier to finance and build in PRE-approved configurations. Electric trains, trucks, and cars would really help with insane energy prices caused by unfriendly global oil interests.
1 Housing hasn't kept up with job growth locations of the US, and probably internationally as well, for at least 50 years. This needs market _correction_ level directives and instead of rent-protection skyscraper, middle-sized multi-levels, townhouses, and even some single family sized houses, where they make sense, need to be built.
> Not enough Housing (where people want and NEED it)
Not a new problem. Wouldn't have caused a spike.
> Global politics exacerbating energy shortages
Energy prices have contributed a little to US inflation, but it's not the main factor. Inflation was also an issue in 2021 before the Ukraine war, but it's a fair point as it hasn't helped in 2022.
> Insufficient supply (generally) for demand
This is an issue, but in recessions it's not uncommon for supply to drop. What's uncommon is for demand not to fall inline (or more than) supply, but instead skyrocket.
The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me.
> Call me crazy, but I have a simpler explanation for the spike in inflation we saw in 2021
> The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me.
You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%.
The pandemic (distributions to the economies and global supply lines) and a war disrupting critical raw materials (foodstuffs and energy) have contributed to the inflation, a lot. Nobody can say how much exactly, but blaming any single factor is willful narrow-mindedness.
> You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%.
Energy and the USD, mainly. In Europe inflation is high primarily because of energy costs. Local currencies are also down 10-20% vs the USD and Europe imports a lot of stuff in dollars. That said, I'm not sure about the exact breakdown of inflation in Sweden specifically so I can only comment generally.
I also add that domestic stimulus measures in the US (both monetary and fiscal) have a significant global impact today. If demand for oil or other commodities rise in the US then they do in markets around the world too. Excessively reckless monetary and fiscal stimulus in the US combined with today's reckless tightening is causing havoc in developing markets around the world.
It would be nice if Jerome Powell and the other Fed Governors owned up to it. They were printing dollars via QE and adding reserves into the banking system as recently as March of this year. Last year, they were adding $120 billion/month of QE into the banking system. They have just ramped up to removing $90 billion/month. They're not removing monetary accomodation at the same rate it was injected.
No resignations for making such a massive sequence of errors.
Creating money causes inflation if it ends up in the hands of people ready to spend it. But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation.
And by all accounts the people don't have any more money. In fact, governments around the world have been creating support packages to deal with the people not having more money to support the rising prices. This suggests that it is supply-side driven, and I'm going to suggest food in particular.
The farm price for food started rising at the beginning of the pandemic when labour was difficult to secure amid illness. Then came the big fertilizer crunch which remains ongoing. Then the war in Ukraine, Europe's bread basket. And now there are looming fears over diesel availability. A quadruple whammy in short succession for something that everyone has to buy.
Saving rates are crashing to support this temporary blip, but with very little income growth it doesn't look sustainable. You can't have inflation if people don't have money to spend. As we start to solve some of our food issues, fertilizer in particular, a massive deflationary event seems quite likely.
> But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation.
The connection isn't all that obvious, but there is indeed a connection between fresh money being invested in financial asset XY and price for bread rising. Even though the investor did not buy up piles of bread, they created pressure on some scarce resources in the value chain on the way to bread. Those are energy, base materials, labour force, ...
Whenever an institution (central bank, commercial bank, ..) creates fresh money and this money gets invested in something, a portion of total global resource allocation (towards different end products) gets shifted. Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices.
Example: commercial banks in some country xy are allowed to lend more due to some changes in the rules for fractional reserve banking. The banks currently have some kind of skew in their allocation of lending, meaning they don't just lend exactly proportional to current total allocation of credit. Let's say they lend more (in respect to current allocation) to real estate development businesses than to bakeries. This means that the real estate sector now has more bidding power for all the scarce resources (energy, raw materials, ...) than the bread sector. So there's new demand for energy from the real estate sector which makes energy prices rise. Voilà, bakeries spend more on energy, bread prices rise as well.
And all that without "someone buying up all the bread".
Injecting fresh money in the financial sector will lead to real world resource reallocation, which will put pressure on sectors that don't even seem to be involved.
> Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices.
In the long run, but it is not uncommon to see production lose money when their input costs are higher than the consumer price. A vendor is still beholden to what someone will pay and when you have to pay for your inputs before proving what the end consumer will pay, you can quickly be left holding the bag. This corrects eventually, but not usually within the span of days or even months. It can often take years to see things correct.
You still can't have inflation if the people don't have money. A business can't magically charge more than someone is willing and able to pay. And they say the people don't have more money to pay with, currently subsisting on draining their savings, so inflation will be short lived – unless incomes start to rise. The FED is working tirelessly to try and prevent that from happening, but we'll see.
> ... you can quickly be left holding the bag. This corrects eventually, but not usually within the span of days or even months. It can often take years to see things correct.
You're aware that especially bakeries have been raising prices very promptly all over the world.
True, price raises do have delays in some cases (rents) but generally for most common services and products that people buy in everyday life, if there's no cartel messing with prices, they will very consistently and without years of delays increase when inputs become more expensive.
> You still can't have inflation if the people don't have money.
This might be true for the more dispensible items in the basket but I'd say for real necessities it's mostly wrong. People who have little money will first shift their expenses from less necessary things to essentials. Even if people don't have more money, they will have to spend more on the things they continue buying. This is exactly what's happening right now, almost everywhere.
> A business can't magically charge more than someone is willing and able to pay.
Unless there are subsidies by the state that try to keep the businesses afloat. These are very pervasive.
As someone who deals with hardware down to the single component level supply chain issues are definitely still a thing. So you will find random products that see themselves without that one IC needed to manufacture it. I myself had to re-design a whole PCB because a (during normal times standard) part was not available even in the timiest quantity anywhere.
And because of the efficiency fetishism we have managed ourselves into the chip shortage still ripples back and forth (people stockpiling parts themselves will lead to local shortages etc).
So there certainly is an element of "you cannot get the thing you want to get, even if you have money"
> The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me.
100% this. I don't understand the motivation or the logic of the people who argue against something that's so obvious
maybe not during covid, but the eu bank did follow the same kind of very generous monetary policies and super low interest rates for the decade prior, as the fed.
i believe all government played the same game ( at least us, eu and china did), which is probably enough to impact the whole world.
A few currrency which didn't play that game such as swiss franc saw their value raised tremendously, which probably means inflation is much less an issue there.
oh yeah absolutely. but we didnt get to try the whole direct-transfert that happened in the US during the covid crisis. Depending on the country, there were "technical unemployement" measures that have been applied. Basically companies reduce your working hours temporarly, and thus your salary, and your unemployment insurance fills the gap.
Central bank policies have been coordinated for a decade. Its a new phenomena.
Think of it like this, the Weimar Republic is a textbook example of hyperinflation because we could compare its currency to neighboring currencies. Now we couldn't do that exact kind of comparison if we wanted to because the neighboring currencies are being created at a proportional rate to the size of their relative economies.
(We have to look at prices of a basket of consumptive goods instead.)
Nobody has any inventory to absorb demand. Nobody has any excess capacity to bring online to absorb demand. Nobody is going to tool up for demand that is likely to go away once fulfilled--especially since most of them have no competitors anyway due to consolidation. Rattle this backward at each step of the supply chain.
You left out the underlying factor, which was Covid stimulus including the grants and loans that were written off. Money was being created and then funneled to the sectors of the economy which were not productive (such as commercial real estate) creating stress in the sectors that were. This will inevitably cause inflation with the conditions 2 & 3 you listed.
Housing is due for a correction as prices are at such high multiples of average wage. The wage price growth we see now is just the first step in bringing the ratio down.
Ignored, not forgot. It'd be like 4 or 5 on the list at least, and was a 'One Time' (spread across 3 or so events within about a year) tax holiday like effect. The timing was, maybe not the best, but I've yet to see a compelling explanation for how it would have an overall effect on __long term__ inflation.
1. I suspect that the 1% who owns 98% of the wealth parks their money into things like land and real-estate, which is causing an artificial shortage and price hikes.
Isn't it fascinating how everyone likes to theorize but no one is consistently right about the causation of macroeconomic developments? Understanding a distributed system with 7.8 billion agents is... hard.
The people who “drop out” of the labor market (not working and don’t collect unemployment) basically are not counted. They are not considered part of the labor force. I know people who get burned out and live off their savings for long periods of time.
Interestingly, even though the labor participation rate hasn't returned to pre-covid levels, total civilian labor force levels have: https://fred.stlouisfed.org/series/CLF16OV#0
I feel like I shouldn't have to explain the idea of participation rate but what you've posted is the numerator, you need to divide it by total working age population to get the rate.
you said "Full employment of a smaller labor force". its not a smaller labor force. its a larger labor force as the number of employees is at an all-time high.
Not sure what to make it of it, but statistics suggest that our per unit output of labour has dropped substantially. So, good employment rate or not, we’re producing less with our labour either way.
This is the case in the United States and Canada, at least. Not sure about the rest of the world.
Which is a statement that doesn't gainsay what you commented on in any way. People leaving the labor market is not measured by the unemployment rate, it is measured by the labor participation rate.
4 An immigration policy that allows new (eager to work for less) citizens a legal path to work within the country, and maybe even become full citizens in the future.
1 More housing so workers can afford to live near where the jobs are.
2 & 1 Regulatory changes to make it easier to build within approved project profiles would really help. The US should adopt Japan's style of area zoning and require that nation-wide (though States and more local areas should still decide which areas are zoned what). As would changes that make ALL types of energy production easier to finance and build in PRE-approved configurations. Electric trains, trucks, and cars would really help with insane energy prices caused by unfriendly global oil interests.
1 Housing hasn't kept up with job growth locations of the US, and probably internationally as well, for at least 50 years. This needs market _correction_ level directives and instead of rent-protection skyscraper, middle-sized multi-levels, townhouses, and even some single family sized houses, where they make sense, need to be built.