The most common explanation I hear for supply chain issues in the economy in the US and Europe is that COVID-19 lockdown measures messed with the supply chains. 

On the other hand there seems to be a story of demand for some products having risen. How much of this is downstream of the FED and EZB printing a lot of new money to stimulate demand? 

New Answer
New Comment

2 Answers sorted by

Daniel V

Nov 08, 2021

40

https://www.econlib.org/inflation-is-it-supply-or-demand/

Sumner, and I, think it's mostly real supply issues (chassis, restrictions at port of LA). The trick with the general supply chain, rather than particular supply chains, is that it affects a lot. But, as jmh says, if it were Fed-induced aggregate demand, inflation should probably be even more broad-based. And even if the increase is due to a sectoral shift in quantity demanded in goods vs. services, that's not an aggregate demand (i.e., Fed) source; the Fed doesn't control the services-money and goods-money supplies, they control the money supply.

The supply chain is subject to the bullwhip effect. Something you hear about in April 2020 (e-commerce), leads to something else in December 2020 (container shortage) to even worse in 2021.

And the market is liking what the Fed is doing in terms of mediun-term inflation expectations, suggesting this inflation is forecasted to be...transitory (I think it is helpful evidence, but it is by no means the last word): http://econbrowser.com/archives/2021/11/what-remains-of-the-inflation-scare-of-october-2021

jmh

Nov 08, 2021

20

Anecdotal and very much "impressionistic" but for me I can look at 4 consumer products and cannot think of a good reason that loose monetary policy would really be driving demand for: auto tires, black stainless steel dishwashers, brake pads and toilet paper. 

My dishwash broke maybe 8 months ago. When I go to stores to look into replacements I'm still getting a story about "we don't know when ...".

I wanted to have replacement brake pads for my car as I will be taking it in for the safety inspection and orders both front and rear from Tire Rack. I got a call from them a bit later telling me they could only provide the front pads and wanted to know if I wanted to wait to get both together, have the fronts sent and revise the order to only front or to cancel or what. While talking with the rep I asked if this was a model issue or more general supply-chain related. He was very clear that it was not just my car's model that was the problem. We also talked a little about tires. Perhaps one of the be quotes from that might be "We will order 3000 tires and when the delivery arrives it's got maybe 300."

In the past week I was thinking I should buy another large pack of toilet paper now the supply from early (and kind of cheap type) purchases when it was a big deal were running out. Those shelves at the store I normally shop are pretty bare and only the cheap brand. That seems to have been the case for the week. Might change so....

So I can see that some of the price inflation that is attributed to the supply chain shock is probably due to monetary and fiscal policies I would suspect that is not the major explanation.

1 comment, sorted by Click to highlight new comments since: Today at 12:38 AM

How much is the fact that most things are produced in China, and China was hit hardest by the pandemic?

(I mean, even things not made in China sometimes have prerequisites made in China.)