One of the things I am most mystified by is why people shrug off the “supply chain” causation of 2022 inflation, when the data have been so massively reinforcing of that thesis. I can sympathize with the camp that doesn’t want a monocausal explanation (I am among those), but even for those with an alternative axe to grind — “Biden did it by passing Trump’s spending request” or “the Fed finally did it via monetary easing that failed to do it the prior 15 years” — one would think charts like this would, you know, at least factor in:
President Biden’s April 2021 spending package was an absurdity in every sense of the word, and should have been opposed when President Trump was seeking the same level of direct transfer payments just months earlier. The distortions created by “too low for too long” Fed policies were an atrocity, and are no doubt significant factors in housing’s 2021 price inflation.
But the almost perfect correlation between a dozen indicators of stress in the supply chain and price inflation, a correlation that held up perfectly on the way back down the mountain as well, has to count for something.
Core goods inflation is exactly 0 percent year-over-year. The consumer-price-inflation level where shelter is adjusted to market measurements (instead of the Fed’s one-year lag methodology) is somewhere between 2 percent and 2.5 percent. Inflation expectations in TIPS spreads going out five years are currently 2.25 percent. Does anyone think we are about to get a radical boost of fiscal and monetary discipline?
The moral of the story is: A wonderful way to see inflation fly up to 8 or 9 percent is to shut down the world’s production of goods and services. “Too much money chasing too few goods,” indeed.