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Sound Money Project: Are Supply Chain Issues Driving Inflation?

economicorder.substack.com

Sound Money Project: Are Supply Chain Issues Driving Inflation?

Check out my latest at AIER's Sound Money Project

Nicolás Cachanosky
Jun 8, 2022
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Sound Money Project: Are Supply Chain Issues Driving Inflation?

economicorder.substack.com

If there is anything I can learn from observing inflation in Argentina, it is that myths die hard once they become part of the political discourse. It can’t be said enough: today’s US inflation goes beyond being a supply-chain problem.

A recent New York Times poll finds that Americans disagree about the cause(s) of inflation. The poll lists several supply-chain explanations, including supply-chain disruptions, COVID-19, and the Russian invasion of Ukraine. On the surface, these supply-chain explanations seem plausible. When goods become more scarce, their prices rise. But there are at least two problems with the supply-chain narrative. 

The first problem with the view that inflation is largely a consequence of supply-chain issues concerns the timing of inflation. The pandemic and corresponding stay-at-home orders began in early 2020. Prices remained below trend until February 2021. If the COVID-19 contraction increased prices, it did so with a considerable lag. Adverse supply shocks typically push prices up more quickly than that.

Continue reading at AIER’s Sound Money Project.

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Sound Money Project: Are Supply Chain Issues Driving Inflation?

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