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It seems like the difference between inflation and short term problems with supply chains could be hard to discern. For example, many commonly used chips are i

It seems like the difference between inflation and short term problems with supply chains could be hard to discern. For example, many commonly used chips are in low supply which has had a broad range of impacts, but the chip shortage is expected to be temporary so none of those cascading impacts should be considered evidence of inflation or contributing to inflationary trends.

runawaybottle 5y ago
But if (hyper)inflation is psychological, could this be all we need to get the ball rolling?
adam_arthur 5y ago
Price increases happen as a result of supply shortages. E.g. demand exceeds supply, reducing availability of the goods. If the supply chain is not elastic enough to increase production quickly, prices will likely rise. See: any chart of Supply/Demand, that demonstrates the relationship. But saying price increases are due to shortages should not alleviate inflation concerns, unless there are specific supply side reasons for the shortage. Prices will only really tend to increase when producers can't meet demand, and can't ratchet up production quickly. Otherwise they're leaving money on the table by having empty shelves of their below market priced goods. E.g. if the chip shortage is caused by a natural disaster: supply side issue. If the chip shortage is caused by increased demand: demand side issue (which manifests as supply shortage). It's very important to distinguish the reason for the shortage to get a better sense of what's going on. In some cases it's just backlogged things due to covid, in others it's increased personal consumption draining inventory and leading to demand induced shortages. Inflation doesn't manifest uniformly. You'll see prices of some subset of goods increase, now that company has more money and spends that money etc. It's highly related to velocity of money

runawaybottle 5y ago

But if (hyper)inflation is psychological, could this be all we need to get the ball rolling?

adam_arthur 5y ago

Price increases happen as a result of supply shortages. E.g. demand exceeds supply, reducing availability of the goods. If the supply chain is not elastic enough to increase production quickly, prices will likely rise. See: any chart of Supply/Demand, that demonstrates the relationship. But saying price increases are due to shortages should not alleviate inflation concerns, unless there are specific supply side reasons for the shortage. Prices will only really tend to increase when producers can't meet demand, and can't ratchet up production quickly. Otherwise they're leaving money on the table by having empty shelves of their below market priced goods. E.g. if the chip shortage is caused by a natural disaster: supply side issue. If the chip shortage is caused by increased demand: demand side issue (which manifests as supply shortage). It's very important to distinguish the reason for the shortage to get a better sense of what's going on. In some cases it's just backlogged things due to covid, in others it's increased personal consumption draining inventory and leading to demand induced shortages. Inflation doesn't manifest uniformly. You'll see prices of some subset of goods increase, now that company has more money and spends that money etc. It's highly related to velocity of money