President Joe Biden, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have told the public not to worry over the recent inflation, which they insist is “transitory.” They link the problem to supply-chain constraints that they suggest will soon lift. Supply problems have certainly contributed, but early relief seems unlikely.
Widespread supply-chain problems are clearly a global reality and part of America’s inflation story. Though many factors have contributed to the supply-chain woes, the heart of the matter is the post-pandemic buying surge. Consumers in the United States and around the world, having spent little during the lockdowns and quarantines and with sometimes-generous government checks in hand, have ratcheted up buying a wide range of goods and services.
As of August 2021, the most recent month for which data are available, consumers bought goods and services at an annual rate of $15.9 trillion. A year ago, that figure equaled $14.3 trillion. It should be easy to see how a demand jump of more than $1.5 trillion in a relatively short time has strained producers.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Adapted from City Journal.
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