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The snake swallowing an elephant theory of the price level would explain a one time increase in the price level, but not higher constant inflation, and certainl

by rsj_hn 5y ago

The snake swallowing an elephant theory of the price level would explain a one time increase in the price level, but not higher constant inflation, and certainly not an increasing rate of inflation.

acdha 5y ago
Why not? It's not like there's a switch somewhere which instantly restored the entire global economy to 2019. Things like shipping or the semiconductor shortage have widespread impacts which are often not obvious if you aren't following a particular field enough to be aware of the dependency web and they can take months to resolve because that has to happen at each bottleneck and things like contractual agreements and labor shortages are not trivial to resolve. That last part is a key one to remember: the pandemic isn't even close to over. Ignoring the people who are dead or suffering long-term health problems, there are a ton of people who either left the workforce for various reasons (childcare, health, etc.) or switched fields and/or locations. That directly increases costs to businesses which have to pay more in wages but it also will have ripple effects for years anywhere buyers are chasing a supply chain which is limited by worker shortages.
eropple 5y ago
To the best of my knowledge, it's unclear whether we're looking at "higher constant inflation" at all. And we probably won't know, except in hindsight and some years hence.
lazide 5y ago
A shortage somewhere takes awhile to be noticed. Once stocks deplete, this causes excess orders to start to be generated by folks to replenish (or create) their own personal stocks from suppliers with low or inconsistent supplies, which generates excess demand. As this happens more and more, you get a demand shock with excess orders and lower and lower supplies. See the ongoing and expanding chip shortage. This has happened with ammunition multiple times in the US in the last few decades, along with many other components and parts. Eventually the panic buying slows or stops and the orders clear, but it can take years for this to happen.

by rsj_hn 5y ago

The snake swallowing an elephant theory of the price level would explain a one time increase in the price level, but not higher constant inflation, and certainly not an increasing rate of inflation.

acdha 5y ago

Why not? It's not like there's a switch somewhere which instantly restored the entire global economy to 2019. Things like shipping or the semiconductor shortage have widespread impacts which are often not obvious if you aren't following a particular field enough to be aware of the dependency web and they can take months to resolve because that has to happen at each bottleneck and things like contractual agreements and labor shortages are not trivial to resolve. That last part is a key one to remember: the pandemic isn't even close to over. Ignoring the people who are dead or suffering long-term health problems, there are a ton of people who either left the workforce for various reasons (childcare, health, etc.) or switched fields and/or locations. That directly increases costs to businesses which have to pay more in wages but it also will have ripple effects for years anywhere buyers are chasing a supply chain which is limited by worker shortages.

eropple 5y ago

To the best of my knowledge, it's unclear whether we're looking at "higher constant inflation" at all. And we probably won't know, except in hindsight and some years hence.

lazide 5y ago

A shortage somewhere takes awhile to be noticed. Once stocks deplete, this causes excess orders to start to be generated by folks to replenish (or create) their own personal stocks from suppliers with low or inconsistent supplies, which generates excess demand. As this happens more and more, you get a demand shock with excess orders and lower and lower supplies. See the ongoing and expanding chip shortage. This has happened with ammunition multiple times in the US in the last few decades, along with many other components and parts. Eventually the panic buying slows or stops and the orders clear, but it can take years for this to happen.