How long will supply chain issues cause inflation?
In case you haven’t heard, there are supply chain issues. All kinds of things are stuck in production or in transit everywhere.
This causes shortages which, in turn, fuel inflation, which worries businesses, consumers, economists and the Federal Reserve.
Fed Chairman Jay Powell told a House committee on Thursday that the central bank believes the recent price spike is “a function of supply-side bottlenecks that we have no knowledge of. control “, but also that” the high inflation will decrease because … the factors causing it are temporary and linked to the pandemic and the reopening of the economy. “
But it’s taking longer to clear up than many experts, including Powell, predicted.
As the pandemic progressed, many consumers were left with cash and eager to buy things. Then global supply chains ran into bottlenecks – as reopening isn’t smooth – and prices soared as buyers competed for limited supplies.
Now the Fed has recognized that these issues are likely to be with us for some time, according to Adam Posen of the Peterson Institute for International Economics.
“The so-called transitional inflation from the pandemic was likely to last longer than the less than a year the Fed seemed to expect,” he said.
The delta variant of the coronavirus is still raging, particularly hitting factories and ports in Southeast Asia that send container ships full of computer chips and consumer goods to the United States
But “it’s probably as bad as the disruption in the supply chain,” Posen said. “The worst has probably happened on that front already, and it’s going to relax and get better from here.”
So how long will it take for supply chains to fall into place and meet business and consumer demand, reducing the upward pressure on prices?
Nyree Hinton, who tracks food, clothing and other staples at Third Bridge, said it would be good for next year.
“It will probably be a Q1, Q2 and Q3 and Q4 problem,” Hinton said.
These supply chain issues and price spikes could prove to be “transient,” said Mark Zandi of Moody’s Analytics.
“If the pandemic is still raging, making people sick and not going to work and shutting down factories and Chinese ports, when the pandemic goes away, these problems will go away,” Zandi said.
On the other hand, “if the price spikes, inflation and shortages occur even though the pandemic is drawing to a close, and I’m wrong,” he said, “then yes, I think it is. ‘At this point, expectations could change, even before 2023 or 2024.
Set up higher inflation expectations and force the Fed to raise interest rates – before the economy has fully recovered.