In the month of October, we have seen the highest rise of inflation in the last 30 years as we continue to deal with the effects of COVID-19 economically. This even tops the inflation growth rates that we’ve been experiencing for the past 12 months as the economy roars back. Compounded with supply chain issues and rising fuel prices, this is a dangerous place for the economy to stay at for the long term. Frankly, this issue is layered with many endemic problems stacked on top of each other that will take time to resolve.
During the pandemic, many people were able to save a lot more money due to the incoming stimulus checks to keep families afloat. But savings also came from much lower consumer spending during the pandemic. This ranged from less luxury goods purchased in fear of what the future holds to reduced spending on gasoline as most people stayed home. This sudden wave of spending once vaccinations have caught supply chains off guard from trying to keep the lights on to booming levels of business never seen before. This has created a bottleneck effect at critical points in our supply chain including our ports and distribution centers. Now, the price of fuel is going up as consumer demand for products shipped goes up as well. Sadly for the Federal Reserve, the effects of monetary policy changes will have limited impact to combat this worrying inflation level. Raising interest rates to cool off businesses will serve to slow down the economy to give supply chains an easier time to deal with the mountain of orders. But the real solutions come from resolving the issues at our ports and getting products onto trucks faster to get products to consumers.
Unfortunately, I don’t think we have seen the full extent of the damage that this blockage in our supply chain will cause. These shortages will continue to dictate the future of our economy and as a result the global economy for years to come.
Credit: https://www.nytimes.com/2021/11/10/business/economy/consumer-price-inflation-october.html
4 comments:
I also agree that raising the interest rate to combat inflation has limited impacts in this situation. Interest rate is the price of borrowing, but people are spending today because they have abundant cash in their hands, not because they are borrowing. The policy is not going to be as effective until people start running out of their stimulus checks and start planning for the future.
I agree, we definitely have not seen the full extent of the damage that the supply chain crisis has caused. It will continue to develop over time. Once vaccinations came out, everything began to shoot up again with little warning. There was a significant decrease in worrying. The bottlenecks began right there. There is going to need to be a good amount of work to bring the economy back to running more efficiently.
As I have mentioned on some other posts is that this is a perfect example of how the market works. Prices rise to combat the severe supply chain shortages. Those who can afford/need the product will purchase and use that product. Those who cannot/do not value it at highly will no longer buy the products. This will eventually bring the market back to equilibrium where prices decrease as a result of supply increasing. I also first think about those who are building houses or buying cars right now. The price to build a home is very high due to lumber shortages, same with buying a car but with chips. Those who are buying are paying extremely high rates which may also allow for fluctuations in the market equilibrium.
Everyone can see the effects of inflation today from gasoline, food, and other goods and services. Prices will be increasing due to these supply chain shortages. Biden's infrastructure plan is trying to attempt to free up these supply chain issues by extending the ports along our coasts. However, those projects may not be completed until a couple of years from now. I am afraid as well that we have not seen the full extent of the damage that this blockage in our supply chain will cause.
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