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demand > supply == inflation The fed can only reduce demand. Raising interest rates won't lower inflation if there are still massive disruptions to the supply

demand > supply == inflation The fed can only reduce demand. Raising interest rates won't lower inflation if there are still massive disruptions to the supply chain. This is especially true for food and gas where people don't have much choice beside buy it or starve.

rndmind 4y ago
In the case of the recent wildly sharp increase in consumer prices is caused by lower supply of goods... not by increase of money supply. If the demand stays the same, the supply goes down... then the price will go up. It's pretty common sense if you think about supply and demand, but I am perplexed at the amount of people that don't practice any critical thought, let alone skepticism.
- MuffinFlavored 4y ago
  > caused by lower supply of goods can you give an example of what specific types of goods?
  - battery_glasses 4y ago
    Semiconductors, shipping containers, tampons are some high profile cases. Examples are plentiful
    - yobbo 4y ago
      It's the price of milk, bread, and meat that is causing CPI to rise. Not PS5s.
MuffinFlavored 4y ago
what confuses me is... take median household that makes about $67k/yr in America median implies that's about 50% of the working population and below household wise, right? if they are having to pay more for energy/rent/food, they're "struggling" more compared to when CPI was lower, right? so... where is all of this excess demand coming from? exclusively from households that make more than $67k/yr? i wonder where the threshold is. obviously high networth individuals aren't affected super adversely by high gas prices. i just don't know what has the higher impact on "demand" (demand for what honestly, i have no clue): millions of lower networth households or more concentrated higher networth households
- jmoak3 4y ago
  >so... where is all of this excess demand coming from? It's not new demand - it's less supply. Less goods coming from overseas due to labor and delivery costs, less oil due to regional conflicts, and less workers due to an imminent demographic tightening are all converging to make it harder to get things on shelves. Prices will continue to rise until demand is crushed (by us or supply/demand) and we settle in a new, temporary optimum of worldwide complexity. There's not much anyone can do about it. If you want to buy something nice, expensive, complicated, and which takes an international supply chain the door may be closing.
  - MuffinFlavored 4y ago
    could you give an example of what kind of goods still have strong "demand"? i'm just trying to call out that, in my interpretation, there's a constantly conflicting/competing narrative being passed around with inflation it's "people are hurting because everything costs more" but "everything costs more because there's still high demand for goods/services", aka, people wanting to blow extra cash they have on stuff demands for necessities won't go away obviously. i know CPI is tracked per category. you can trace "ok, this specific good cost more in 2022 because of XYZ reasons in its supply chain", most of them oil backed/related i just don't know how to digest anything related to cost increases other than "it's probably oil" and i'm curious what else there is
    - jmoak3 4y ago
      >digest anything related to cost increases other than "it's probably oil" I think Oil is a large part for sure, probably larger than the others, but I have no way of diving into how each affects prices. Energy costs have grown the most dramatically of the factors I listed, so "it's probably oil" doesn't seem too far off at the moment. However in the near term, looking at China's labor force (https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?locations=CN https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?location...) you can see that it's begun its downward trend (https://www.populationpyramid.net/china/2020/ https://www.populationpyramid.net/china/2020/), which means that labor costs in China necessarily have to rise as supply falls, which will affect prices very soon (if not already). This labor crunch will slowly squeeze in many places and make international goods more of a hassle to produce. It also has a destabilizing effect on the QoL in many countries (see Russia) which will provoke them to drastic moves that make global shipping even more of a pain (more expensive). Right now we still import lots from China, maybe someone else can find something better than this chart of nominal trade values with China per month: https://www.census.gov/foreign-trade/balance/c5700.html https://www.census.gov/foreign-trade/balance/c5700.html but I don't know if the dollar amount reflects the total volume accurately. I would wager we import less goods overall compared to 2019. As for why I think demand is the same, take a look at the number of workers in the USA: https://fred.stlouisfed.org/series/PAYEMS https://fred.stlouisfed.org/series/PAYEMS. It's about where it was in 2019 and we managed to provide every service we needed just fine back then - goods have to be more expensive due to some sort of gap in supply, not due to a new outsized growth in demand (in my opinion at least). Open to other ideas and opinions

rndmind 4y ago

In the case of the recent wildly sharp increase in consumer prices is caused by lower supply of goods... not by increase of money supply. If the demand stays the same, the supply goes down... then the price will go up. It's pretty common sense if you think about supply and demand, but I am perplexed at the amount of people that don't practice any critical thought, let alone skepticism.

MuffinFlavored 4y ago
> caused by lower supply of goods can you give an example of what specific types of goods?
- battery_glasses 4y ago
  Semiconductors, shipping containers, tampons are some high profile cases. Examples are plentiful
  - yobbo 4y ago
    It's the price of milk, bread, and meat that is causing CPI to rise. Not PS5s.

MuffinFlavored 4y ago

what confuses me is... take median household that makes about $67k/yr in America median implies that's about 50% of the working population and below household wise, right? if they are having to pay more for energy/rent/food, they're "struggling" more compared to when CPI was lower, right? so... where is all of this excess demand coming from? exclusively from households that make more than $67k/yr? i wonder where the threshold is. obviously high networth individuals aren't affected super adversely by high gas prices. i just don't know what has the higher impact on "demand" (demand for what honestly, i have no clue): millions of lower networth households or more concentrated higher networth households

jmoak3 4y ago
>so... where is all of this excess demand coming from? It's not new demand - it's less supply. Less goods coming from overseas due to labor and delivery costs, less oil due to regional conflicts, and less workers due to an imminent demographic tightening are all converging to make it harder to get things on shelves. Prices will continue to rise until demand is crushed (by us or supply/demand) and we settle in a new, temporary optimum of worldwide complexity. There's not much anyone can do about it. If you want to buy something nice, expensive, complicated, and which takes an international supply chain the door may be closing.
- MuffinFlavored 4y ago
  could you give an example of what kind of goods still have strong "demand"? i'm just trying to call out that, in my interpretation, there's a constantly conflicting/competing narrative being passed around with inflation it's "people are hurting because everything costs more" but "everything costs more because there's still high demand for goods/services", aka, people wanting to blow extra cash they have on stuff demands for necessities won't go away obviously. i know CPI is tracked per category. you can trace "ok, this specific good cost more in 2022 because of XYZ reasons in its supply chain", most of them oil backed/related i just don't know how to digest anything related to cost increases other than "it's probably oil" and i'm curious what else there is
  - jmoak3 4y ago
    >digest anything related to cost increases other than "it's probably oil" I think Oil is a large part for sure, probably larger than the others, but I have no way of diving into how each affects prices. Energy costs have grown the most dramatically of the factors I listed, so "it's probably oil" doesn't seem too far off at the moment. However in the near term, looking at China's labor force (https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?locations=CN https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?location...) you can see that it's begun its downward trend (https://www.populationpyramid.net/china/2020/ https://www.populationpyramid.net/china/2020/), which means that labor costs in China necessarily have to rise as supply falls, which will affect prices very soon (if not already). This labor crunch will slowly squeeze in many places and make international goods more of a hassle to produce. It also has a destabilizing effect on the QoL in many countries (see Russia) which will provoke them to drastic moves that make global shipping even more of a pain (more expensive). Right now we still import lots from China, maybe someone else can find something better than this chart of nominal trade values with China per month: https://www.census.gov/foreign-trade/balance/c5700.html https://www.census.gov/foreign-trade/balance/c5700.html but I don't know if the dollar amount reflects the total volume accurately. I would wager we import less goods overall compared to 2019. As for why I think demand is the same, take a look at the number of workers in the USA: https://fred.stlouisfed.org/series/PAYEMS https://fred.stlouisfed.org/series/PAYEMS. It's about where it was in 2019 and we managed to provide every service we needed just fine back then - goods have to be more expensive due to some sort of gap in supply, not due to a new outsized growth in demand (in my opinion at least). Open to other ideas and opinions