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The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needi

The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production is on lockdown and just about every product made, regardless of where it's made, is relying on part(s) coming from China. Supply is constrained and therefore prices are rising. Likewise, supply is constrained and that's impacting industrial output - hence a shrinking economy.

mupuff1234 5y ago
I'm pretty sure that's why they waited so long to raise interests, as they thought supply chain issue would be resolved and all will come back to normal. Although that doesn't really explain the inflation of asset values.
- namelessoracle 5y ago
  Supply chain issues can explain assert values rising. People/groups put money into assets instead of goods.
- conductr 5y ago
  Saving rate went through the roof and it's not stuffed under people's mattresses
adam_arthur 5y ago
It's a combination. But if you look at the actual data as it relates to consumer consumption, pretty clear the primary driver was demand driven. The port backlogs that started in 2021 were due to excess consumption triggered by stimulus Retail sales chart: https://fred.stlouisfed.org/series/RSXFS https://fred.stlouisfed.org/series/RSXFS Tell me you don't see a problem here ^ ?
- merpnderp 5y ago
  Couple that with the massive drawdown in Chinese imports and no wonder inflation is blowing up. United States Imports from China: https://tradingeconomics.com/united-states/imports-from-china https://tradingeconomics.com/united-states/imports-from-chin...
- qiskit 5y ago
  > pretty clear the primary driver was demand driven. Perhaps after the sharp downward in 2020. But it isn't clear what is the primary driver after the 1st qtr of 2020. That chart doesn't necessarily imply consumer consumption is driving the increase. It could be inflation that's driving the uptick in the chart. If last year it cost $1 to buy a dozen eggs. And now it costs $2 to buy a dozen eggs, it would cause a spike in the chart. Same amount of purchases, but different prices. It's hard to tell from that chart whether the rise to $600 billion in consumption is due to more consumption or higher prices. Is it 2 * $1/dozen = $2 or 1 * $2/dozen = $2. We end up at $2, but one is via greater consumption and the other via inflation.
  - adam_arthur 5y ago
    The chart is very obvious. We have a 10y trend of gradual increases YoY in consumption. Then the pandemic hits and we have a 30%+ increase in consumption in the span of a year. That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious. Also the various spikes in consumption clearly aligns with when the respective spending packages were passed. The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised
    - qiskit 5y ago
      > The chart is very obvious. It is only obvious to people who have already drawn their conclusions and are looking for justifications to back up their conclusions. > That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious. Once again, you already had your conclusion and went looking for "data". Personal income spiked briefly and fell back down back to its linear trajectory. > The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised Looks like there is vested interested everywhere. In my experience, people who see the "obvious" in a very complicated issue are agenda driven people with vested interests. Also, my comment was in relation to consumption and inflation. My point was that you can't necessarily see inflation in consumption because you can't tell if the increase in consumption was due to inflation or more purchases. Something you completely ignored.
onlyrealcuzzo 5y ago
Durable goods make up ~20% of the US economy at best (~12.7% on average according to the Cleveland Fed [1]). Food, energy, & financing are >50% of the US economy. The rest of the economy is primarily services - which have very little impact from the supply of screws & toasters coming out of China going down. [1] https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-trends/2012-economic-trends/et-20120706-durable-goods-consumption-and-gdp.aspx#:~:text=Relative%20to%20nondurables%20and%20services,over%20the%20past%2030%20years https://www.clevelandfed.org/en/newsroom-and-events/publicat....
- chii 5y ago
  most services require some material goods associated with the service. Even if wages aren't raised, those materials would cause prices to rise.
  - onlyrealcuzzo 5y ago
    The vast majority of "services" in the US are healthcare, food services, technology, and financial services. Aside from cloud hardware, the impact on the rest due to supply constraints from China has been extremely minimal. Very little food comes from China. Almost 0 energy. And financing costs are 100% set by the Fed. China plays a very small part in the US inflation story.
    - deleted 5y ago
      [deleted]
    - chii 5y ago
      > "services" in the US are healthcare, food services, technology, and financial services. with the exception of financial services, all of the other services you listed require commodity materials to work - things like food services require utensils, plates, napkins, not to mention the food. Healthcare has a lot of materials (not just the direct, but indirect materials like reagents for labs and diagnostics) which often come from overseas rather than locally produced. As for technology, it's such a broad area that i dont know what to say about it but at least for compute, there's a lot of shortages of commodity hardware recently. Not saying that all of the shrinkage and inflation is caused by the supply chain slowdown from china, but a large percentage of it is. The rest is from labour shortages.
adolph 5y ago
> supply is constrained and money is not constrained. What could go wrong?
- taylodl 5y ago
  Inflation should take care of demand. A constrained supply is going to move the demand curve to higher prices - which we're seeing. The higher prices will bring demand in alignment with supply. Traditionally, to deal with the problem of constrained supply you would lower rates to make more capital available in order to create more supply-producing assets. I don't think the Fed should lower rates in this situation because we all know that building more factories won't solve the supply chain issues due to the pandemic. However, we need to balance that against investing more in automation since having fewer workers due to the pandemic. They're in quite the pickle!
  - adolph 5y ago
    > Inflation should take care of demand. Indeed, may as well buy now (if you can) since you'll get less for the same money in the future. > The higher prices will bring demand in alignment with supply. Unless the stimulus cash injection policy allows people to continue to buy now (see above).
    - taylodl 5y ago
      With everything opening back up and experiencing a labor shortage it would be very difficult to justify any further stimulus monies. I don't think we have to worry about that. Economists expected a rise in inflation due to stimulus spending in 2020 - that had already been factored in to their forecasts. What has surprised them is the rate of inflation is higher than expected. I'm arguing the reason they're surprised is they were only considering financial policy and not also including the effects of constrained supply - which is also why they also missed forecasting a shrinking economy.
      - adolph 5y ago
        Hayek’s greatest contribution to economics was to show that society is far more complex than we realize, with little pieces of knowledge dispersed among millions of individuals. “The curious task of economics,” he famously wrote in “The Fatal Conceit,” which he published in 1988, “is to demonstrate to men how little they really know about what they imagine they can design.” https://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/10/13/f-a-hayek-and-the-pretense-of-knowledge/ https://www.washingtonpost.com/news/volokh-conspiracy/wp/201...
bitcurious 5y ago
In my neck of the woods, by far the largest and most impactful inflation has been in the housing sector - 50% price inflation over the past two years. This is entirely attributable to the Fed's pumping of soft assets like stocks, leading to a bunch of paper millionaires cashing out.
- colinmhayes 5y ago
  Also due to the fact that we stopped building new homes after 08. If supply keeps up with rising demand prices don't change.
  - gruez 5y ago
    >Also due to the fact that we stopped building new homes after 08. That's easily refuted with a quick search. https://tradingeconomics.com/united-states/housing-starts https://tradingeconomics.com/united-states/housing-starts
    - aeternum 5y ago
      If you zoom out on that graph, housing starts were well-below average for over a decade and were actually trending down even before 08: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST Decreased supply along with increasing population(demand) generally yields a shortage and increased prices.
    - presentation 5y ago
      It’s probably also that it really depends on the place. If you’re in SF really does feel like the housing market has stood still.
  - giantrobot 5y ago
    I'm currently sitting in a house that completed construction in December. I suspect your information might not be right.
    - 5y ago
chottocharaii 5y ago
All inflation is a direct consequence of monetary policy
- chii 5y ago
  not sure of you can categorically claim this - why did inflation in the 70's oil crisis happen?
- lumost 5y ago
  Or is it? we really have very few experiments to determine this. War can certainly cause both inflation, and deflation. While monetary policy can adapt to an extent, it's unclear that it's the primary driver of inflation in all circumstances.
- francisofascii 5y ago
  Monetary policy is a factor, but definitely not the only factor. Supply shock inflation is pretty common throughout history.
neffy 5y ago
Yes it's the perfect storm for economic theories... increases in the money supply and actual product shortages both causing inflation at the same time. Meanwhile increasing interest rates are in a nasty intersection with banks and other lenders stuck with low interest 30 year loans on their books, which make them very vulnerable to any new lenders. definitely popcorn time.
- riku_iki 5y ago
  > with low interest 30 year loans Are those loans supported by other low interest loans they took themself?
  - mynameishere 5y ago
    Sure, checking accounts and the like.
    - riku_iki 5y ago
      I was thinking about banks taking loans from Fed. I may be wrong, not an expert in this topic.
  - neffy 5y ago
    Not usually in the bank's case - we have to hope - and if they are hopefully the various buffers against duration mismatches are sufficient - but then again this was the reason why Northern Rock and a bunch of other lenders went under in the 2008 crash.
jbay808 5y ago
Just because inflation is being caused by supply constraints, doesn't mean that raising interest rates is an inappropriate response.
free 5y ago
That's one thing that India got right in response to Covid. The primary focus of the stimulus to alleviate the supply side constraints[1][2]. Many were questioning the approach of focusing on supply side, making small changes, observing and reacting instead of a big mega stimulus the likes of USA did. Good to see some merit in India. [1]https://economictimes.indiatimes.com/news/economy/policy/wait-watch-and-then-respond-to-covid-19s-economic-impact-sanjeev-sanyal-principal-economic-adviser/articleshow/84196241.cms?from=mdr https://economictimes.indiatimes.com/news/economy/policy/wai... [2]https://twitter.com/sanjeevsanyal/status/1461787145027338245 https://twitter.com/sanjeevsanyal/status/1461787145027338245
- blueblisters 5y ago
  I think India’s position was much more fiscally constrained to even consider a demand-side stimulus. I think a means-tested demand-side stimulus was still warranted given the number of people and industries who lost their livelihood because of multiple shutdowns.
lkxijlewlf 5y ago
Some of it is from greed. Inflation is 8.5% but almost all the major food producers have raised prices by ~15%.
- HFguy 5y ago
  A lot of commodity inputs into food production are up way more than 8.5% (e.g., corn, wheat). And a lot of the farmers inputs (e.g., energy, fertilizer) are up more than 8.5%. The 8.5% is a weighted, blended average of a lot of things. So it could be reasonable that if you were selling bread, that the price would need to go up more than 8.5%. The question is whether their profit margins are up? I don't know.
  - QuarterReptile 5y ago
    >The question is whether their profit margins are up? I don't know. I would naturally expect companies to hold larger profit margins when there is instability. Setting up a business with low profit margin in a volatile business environment would be like building a house on a concrete slab right next to a river that often overflows its banks.
  - Ekaros 5y ago
    Actually considering the price of wheat from price of bread even 10% increase probably isn't too much. But that doesn't mean there hasn't be similar cost increases in other parts of the chain from commercial bakeries to store and transport.
- gruez 5y ago
  Isn't that a tautology? In a basket of goods there's almost certainly going to be something that's inflating above average. That means you'll always have some sector (that's inflating faster than general inflation) to blame for "greed".
- QuarterReptile 5y ago
  Were the food producers not being greedy before those price increases as well? I don't understand.
HFguy 5y ago
Agree that many don't appreciate this, however... This is more true in Europe than the US. Most of the inflation there is due to (1) Increases in the price of energy and (2) Supply chain issues. While those are also true in the US, much of the inflation in the US is due to wage increases (something like 40-50% of the inflation I believe). These are likely the result of a number of factors including the US having outsized stimulus relative to other developed countries (especially the fiscal stimulus). So it is more reasonable for the Fed to consider tightening. And for the Europeans to be significantly slower on their tightening. Thus, what you are seeing in the currency markets where the EUR/USD is decreasing.
- deleted 5y ago
  [deleted]
dibujante 5y ago
This is what I think too, and I think it's going to lead to an unnecessary recession. Eventually, hitting the economy on the head with a large enough brick will drive demand down enough that even supply chain issues won't contribute to inflation, but that's an economy with such stagnant demand that it's definitely a recessed one.
dragonwriter 5y ago
> The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. Irrespective of the source, the Fed rate hike (well, and QT, which it is expected to also deploy) is the only tool it has available to deal with inflation, which is still, for now, the bigger problem from the perspective of it's mandate. The fact that (possibly transitory if policy were neutral) slowdown is occurring while the Fed is taking that action, though, means it is especially critical for Congress to take fiscal action to fine tune the impacts or there is a very high risk of recession occurring before inflation is controlled, producing a period of stagflation which is both tremendously painful across the economy and very difficult to escape from. The problem is Congress is basically asleep at the switch on economic policy.
- mywittyname 5y ago
  Congress dumped boatloads of money into the economy over the past two years and failed to provide oversight. Everyone is pointing at the Fed for causing inflation and ignoring the fact that Congress gave business owners five-to-seven figure payouts in straight cash. You can find out how much businesses around you received from the PPP, and there's no shortage of small companies who received a few hundred grand in aid. Imagine what you'd do with a $250k check from the government.
  - jandrese 5y ago
    I think there is more than one reason for the current inflation. The supply crunch is one factor. The stimulus is another. In particular the Biden stimulus is considerably different than the Trump stimulus in that it gave the money to people who would spend it on goods and services instead of people who would just stuff it into their market accounts. This caused a demand spike right at a time when supply was unusually constrained. Unfortunately as the stimulus was known to be a short term thing this did not lead to people starting factories to make products to sell. By the time they got it running the stimulus would run out and they would be left holding the bag.
- gumby 5y ago
  > the Fed rate hike (well, and QT, which it is expected to also deploy) is the only tool it has available to deal with inflation And the signalling of aggressive hiking, though not all at once, is very important. By saying they will do it and then following through they can change course in a few months depending on conditions. One of the important lessons from the 1970s was but unfortunately positive feedback loop baked into inflation escalators all based on expectations plus the only way to break the cycle was Carter to recruit Voelker to basically shut things down to damn that curve. Since then the Fed has used an interesting combination of oracular opacity alternating with clarity to try to prevent a repeat of the 1970s situation.
bestbuyer__ 5y ago
I think it's mostly due to the Federal Reserve printing trillions of dollars out of thin air in 2020. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL The inflation we're experiencing now is a lagging indicator of the massive stimulus of 2 years ago.
game_the0ry 5y ago
Don't forget about corporations price gouging their customers. There is a little bit of that too. And too much "money printing." There can be a lot of reasons for inflation.
baxtr 5y ago
Wait. Doesn't overheating produce exactly the same result? Supplies get constrained because demand went up. So now, demand stays stable and supplies are reduced. The gap is the same, isn't it?
singularity2001 5y ago
>>> The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production … Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid?
- dragonwriter 5y ago
  > Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid? Given that other rounds of QE did not produce inflation, no, it's not a “necessity” of that. Money supply is a factor in inflation vs deflation, but do are lots of other things.
deleted 5y ago
[deleted]

mupuff1234 5y ago

I'm pretty sure that's why they waited so long to raise interests, as they thought supply chain issue would be resolved and all will come back to normal. Although that doesn't really explain the inflation of asset values.

namelessoracle 5y ago
Supply chain issues can explain assert values rising. People/groups put money into assets instead of goods.
conductr 5y ago
Saving rate went through the roof and it's not stuffed under people's mattresses

adam_arthur 5y ago

It's a combination. But if you look at the actual data as it relates to consumer consumption, pretty clear the primary driver was demand driven. The port backlogs that started in 2021 were due to excess consumption triggered by stimulus Retail sales chart: https://fred.stlouisfed.org/series/RSXFS https://fred.stlouisfed.org/series/RSXFS Tell me you don't see a problem here ^ ?

merpnderp 5y ago
Couple that with the massive drawdown in Chinese imports and no wonder inflation is blowing up. United States Imports from China: https://tradingeconomics.com/united-states/imports-from-china https://tradingeconomics.com/united-states/imports-from-chin...
qiskit 5y ago
> pretty clear the primary driver was demand driven. Perhaps after the sharp downward in 2020. But it isn't clear what is the primary driver after the 1st qtr of 2020. That chart doesn't necessarily imply consumer consumption is driving the increase. It could be inflation that's driving the uptick in the chart. If last year it cost $1 to buy a dozen eggs. And now it costs $2 to buy a dozen eggs, it would cause a spike in the chart. Same amount of purchases, but different prices. It's hard to tell from that chart whether the rise to $600 billion in consumption is due to more consumption or higher prices. Is it 2 * $1/dozen = $2 or 1 * $2/dozen = $2. We end up at $2, but one is via greater consumption and the other via inflation.
- adam_arthur 5y ago
  The chart is very obvious. We have a 10y trend of gradual increases YoY in consumption. Then the pandemic hits and we have a 30%+ increase in consumption in the span of a year. That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious. Also the various spikes in consumption clearly aligns with when the respective spending packages were passed. The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised
  - qiskit 5y ago
    > The chart is very obvious. It is only obvious to people who have already drawn their conclusions and are looking for justifications to back up their conclusions. > That doesn't happen by mistake, and if you look at the personal income charts it becomes even more obvious. Once again, you already had your conclusion and went looking for "data". Personal income spiked briefly and fell back down back to its linear trajectory. > The fact that it took a whole year for people to understand the root cause is quite amazing, given that we have this very obvious data. But there was a vested interest in it being a supply side issue, so I'm not surprised Looks like there is vested interested everywhere. In my experience, people who see the "obvious" in a very complicated issue are agenda driven people with vested interests. Also, my comment was in relation to consumption and inflation. My point was that you can't necessarily see inflation in consumption because you can't tell if the increase in consumption was due to inflation or more purchases. Something you completely ignored.

onlyrealcuzzo 5y ago

Durable goods make up ~20% of the US economy at best (~12.7% on average according to the Cleveland Fed [1]). Food, energy, & financing are >50% of the US economy. The rest of the economy is primarily services - which have very little impact from the supply of screws & toasters coming out of China going down. [1] https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-trends/2012-economic-trends/et-20120706-durable-goods-consumption-and-gdp.aspx#:~:text=Relative%20to%20nondurables%20and%20services,over%20the%20past%2030%20years https://www.clevelandfed.org/en/newsroom-and-events/publicat....

chii 5y ago
most services require some material goods associated with the service. Even if wages aren't raised, those materials would cause prices to rise.
- onlyrealcuzzo 5y ago
  The vast majority of "services" in the US are healthcare, food services, technology, and financial services. Aside from cloud hardware, the impact on the rest due to supply constraints from China has been extremely minimal. Very little food comes from China. Almost 0 energy. And financing costs are 100% set by the Fed. China plays a very small part in the US inflation story.
  - deleted 5y ago
    [deleted]
  - chii 5y ago
    > "services" in the US are healthcare, food services, technology, and financial services. with the exception of financial services, all of the other services you listed require commodity materials to work - things like food services require utensils, plates, napkins, not to mention the food. Healthcare has a lot of materials (not just the direct, but indirect materials like reagents for labs and diagnostics) which often come from overseas rather than locally produced. As for technology, it's such a broad area that i dont know what to say about it but at least for compute, there's a lot of shortages of commodity hardware recently. Not saying that all of the shrinkage and inflation is caused by the supply chain slowdown from china, but a large percentage of it is. The rest is from labour shortages.

adolph 5y ago

> supply is constrained and money is not constrained. What could go wrong?

taylodl 5y ago
Inflation should take care of demand. A constrained supply is going to move the demand curve to higher prices - which we're seeing. The higher prices will bring demand in alignment with supply. Traditionally, to deal with the problem of constrained supply you would lower rates to make more capital available in order to create more supply-producing assets. I don't think the Fed should lower rates in this situation because we all know that building more factories won't solve the supply chain issues due to the pandemic. However, we need to balance that against investing more in automation since having fewer workers due to the pandemic. They're in quite the pickle!
- adolph 5y ago
  > Inflation should take care of demand. Indeed, may as well buy now (if you can) since you'll get less for the same money in the future. > The higher prices will bring demand in alignment with supply. Unless the stimulus cash injection policy allows people to continue to buy now (see above).
  - taylodl 5y ago
    With everything opening back up and experiencing a labor shortage it would be very difficult to justify any further stimulus monies. I don't think we have to worry about that. Economists expected a rise in inflation due to stimulus spending in 2020 - that had already been factored in to their forecasts. What has surprised them is the rate of inflation is higher than expected. I'm arguing the reason they're surprised is they were only considering financial policy and not also including the effects of constrained supply - which is also why they also missed forecasting a shrinking economy.
    - adolph 5y ago
      Hayek’s greatest contribution to economics was to show that society is far more complex than we realize, with little pieces of knowledge dispersed among millions of individuals. “The curious task of economics,” he famously wrote in “The Fatal Conceit,” which he published in 1988, “is to demonstrate to men how little they really know about what they imagine they can design.” https://www.washingtonpost.com/news/volokh-conspiracy/wp/2014/10/13/f-a-hayek-and-the-pretense-of-knowledge/ https://www.washingtonpost.com/news/volokh-conspiracy/wp/201...

bitcurious 5y ago

In my neck of the woods, by far the largest and most impactful inflation has been in the housing sector - 50% price inflation over the past two years. This is entirely attributable to the Fed's pumping of soft assets like stocks, leading to a bunch of paper millionaires cashing out.

colinmhayes 5y ago
Also due to the fact that we stopped building new homes after 08. If supply keeps up with rising demand prices don't change.
- gruez 5y ago
  >Also due to the fact that we stopped building new homes after 08. That's easily refuted with a quick search. https://tradingeconomics.com/united-states/housing-starts https://tradingeconomics.com/united-states/housing-starts
  - aeternum 5y ago
    If you zoom out on that graph, housing starts were well-below average for over a decade and were actually trending down even before 08: https://fred.stlouisfed.org/series/HOUST https://fred.stlouisfed.org/series/HOUST Decreased supply along with increasing population(demand) generally yields a shortage and increased prices.
  - presentation 5y ago
    It’s probably also that it really depends on the place. If you’re in SF really does feel like the housing market has stood still.
- giantrobot 5y ago
  I'm currently sitting in a house that completed construction in December. I suspect your information might not be right.
  - 5y ago

chottocharaii 5y ago

All inflation is a direct consequence of monetary policy

chii 5y ago
not sure of you can categorically claim this - why did inflation in the 70's oil crisis happen?
lumost 5y ago
Or is it? we really have very few experiments to determine this. War can certainly cause both inflation, and deflation. While monetary policy can adapt to an extent, it's unclear that it's the primary driver of inflation in all circumstances.
francisofascii 5y ago
Monetary policy is a factor, but definitely not the only factor. Supply shock inflation is pretty common throughout history.

neffy 5y ago

Yes it's the perfect storm for economic theories... increases in the money supply and actual product shortages both causing inflation at the same time. Meanwhile increasing interest rates are in a nasty intersection with banks and other lenders stuck with low interest 30 year loans on their books, which make them very vulnerable to any new lenders. definitely popcorn time.

riku_iki 5y ago
> with low interest 30 year loans Are those loans supported by other low interest loans they took themself?
- mynameishere 5y ago
  Sure, checking accounts and the like.
  - riku_iki 5y ago
    I was thinking about banks taking loans from Fed. I may be wrong, not an expert in this topic.
- neffy 5y ago
  Not usually in the bank's case - we have to hope - and if they are hopefully the various buffers against duration mismatches are sufficient - but then again this was the reason why Northern Rock and a bunch of other lenders went under in the 2008 crash.

jbay808 5y ago

Just because inflation is being caused by supply constraints, doesn't mean that raising interest rates is an inappropriate response.

free 5y ago

That's one thing that India got right in response to Covid. The primary focus of the stimulus to alleviate the supply side constraints[1][2]. Many were questioning the approach of focusing on supply side, making small changes, observing and reacting instead of a big mega stimulus the likes of USA did. Good to see some merit in India. [1]https://economictimes.indiatimes.com/news/economy/policy/wait-watch-and-then-respond-to-covid-19s-economic-impact-sanjeev-sanyal-principal-economic-adviser/articleshow/84196241.cms?from=mdr https://economictimes.indiatimes.com/news/economy/policy/wai... [2]https://twitter.com/sanjeevsanyal/status/1461787145027338245 https://twitter.com/sanjeevsanyal/status/1461787145027338245

blueblisters 5y ago
I think India’s position was much more fiscally constrained to even consider a demand-side stimulus. I think a means-tested demand-side stimulus was still warranted given the number of people and industries who lost their livelihood because of multiple shutdowns.

lkxijlewlf 5y ago

Some of it is from greed. Inflation is 8.5% but almost all the major food producers have raised prices by ~15%.

HFguy 5y ago
A lot of commodity inputs into food production are up way more than 8.5% (e.g., corn, wheat). And a lot of the farmers inputs (e.g., energy, fertilizer) are up more than 8.5%. The 8.5% is a weighted, blended average of a lot of things. So it could be reasonable that if you were selling bread, that the price would need to go up more than 8.5%. The question is whether their profit margins are up? I don't know.
- QuarterReptile 5y ago
  >The question is whether their profit margins are up? I don't know. I would naturally expect companies to hold larger profit margins when there is instability. Setting up a business with low profit margin in a volatile business environment would be like building a house on a concrete slab right next to a river that often overflows its banks.
- Ekaros 5y ago
  Actually considering the price of wheat from price of bread even 10% increase probably isn't too much. But that doesn't mean there hasn't be similar cost increases in other parts of the chain from commercial bakeries to store and transport.
gruez 5y ago
Isn't that a tautology? In a basket of goods there's almost certainly going to be something that's inflating above average. That means you'll always have some sector (that's inflating faster than general inflation) to blame for "greed".
QuarterReptile 5y ago
Were the food producers not being greedy before those price increases as well? I don't understand.

HFguy 5y ago

Agree that many don't appreciate this, however... This is more true in Europe than the US. Most of the inflation there is due to (1) Increases in the price of energy and (2) Supply chain issues. While those are also true in the US, much of the inflation in the US is due to wage increases (something like 40-50% of the inflation I believe). These are likely the result of a number of factors including the US having outsized stimulus relative to other developed countries (especially the fiscal stimulus). So it is more reasonable for the Fed to consider tightening. And for the Europeans to be significantly slower on their tightening. Thus, what you are seeing in the currency markets where the EUR/USD is decreasing.

deleted 5y ago
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dibujante 5y ago

This is what I think too, and I think it's going to lead to an unnecessary recession. Eventually, hitting the economy on the head with a large enough brick will drive demand down enough that even supply chain issues won't contribute to inflation, but that's an economy with such stagnant demand that it's definitely a recessed one.

dragonwriter 5y ago

> The fact the Fed is even contemplating a rate hike tells me they're misreading what's going on. Irrespective of the source, the Fed rate hike (well, and QT, which it is expected to also deploy) is the only tool it has available to deal with inflation, which is still, for now, the bigger problem from the perspective of it's mandate. The fact that (possibly transitory if policy were neutral) slowdown is occurring while the Fed is taking that action, though, means it is especially critical for Congress to take fiscal action to fine tune the impacts or there is a very high risk of recession occurring before inflation is controlled, producing a period of stagflation which is both tremendously painful across the economy and very difficult to escape from. The problem is Congress is basically asleep at the switch on economic policy.

mywittyname 5y ago
Congress dumped boatloads of money into the economy over the past two years and failed to provide oversight. Everyone is pointing at the Fed for causing inflation and ignoring the fact that Congress gave business owners five-to-seven figure payouts in straight cash. You can find out how much businesses around you received from the PPP, and there's no shortage of small companies who received a few hundred grand in aid. Imagine what you'd do with a $250k check from the government.
- jandrese 5y ago
  I think there is more than one reason for the current inflation. The supply crunch is one factor. The stimulus is another. In particular the Biden stimulus is considerably different than the Trump stimulus in that it gave the money to people who would spend it on goods and services instead of people who would just stuff it into their market accounts. This caused a demand spike right at a time when supply was unusually constrained. Unfortunately as the stimulus was known to be a short term thing this did not lead to people starting factories to make products to sell. By the time they got it running the stimulus would run out and they would be left holding the bag.
gumby 5y ago
> the Fed rate hike (well, and QT, which it is expected to also deploy) is the only tool it has available to deal with inflation And the signalling of aggressive hiking, though not all at once, is very important. By saying they will do it and then following through they can change course in a few months depending on conditions. One of the important lessons from the 1970s was but unfortunately positive feedback loop baked into inflation escalators all based on expectations plus the only way to break the cycle was Carter to recruit Voelker to basically shut things down to damn that curve. Since then the Fed has used an interesting combination of oracular opacity alternating with clarity to try to prevent a repeat of the 1970s situation.

bestbuyer__ 5y ago

I think it's mostly due to the Federal Reserve printing trillions of dollars out of thin air in 2020. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL The inflation we're experiencing now is a lagging indicator of the massive stimulus of 2 years ago.

game_the0ry 5y ago

Don't forget about corporations price gouging their customers. There is a little bit of that too. And too much "money printing." There can be a lot of reasons for inflation.

baxtr 5y ago

Wait. Doesn't overheating produce exactly the same result? Supplies get constrained because demand went up. So now, demand stays stable and supplies are reduced. The gap is the same, isn't it?

singularity2001 5y ago

>>> The inflation we're seeing isn't a result of a hot economy needing to be kept in check, it's the fact that 40% of China's production … Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid?

dragonwriter 5y ago
> Isn't inflation mostly a necessity of printing extraordinary amounts of dollars and euros during covid? Given that other rounds of QE did not produce inflation, no, it's not a “necessity” of that. Money supply is a factor in inflation vs deflation, but do are lots of other things.

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