The Fed’s rates increases are predicated on the belief that they will “tame inflation.” But Fed representatives recognize it’s a blunt instrument, which in particular won’t address supply side issues, which are impacting, e.g., the price of gas and food. A major decision to raise rates so quickly is (certainly?) based on research and deliberation. I’d imagine that the Fed concluded that, while the instrument is blunt, it’s better than any alternatives. Could someone help explain the extent to which the Fed actually has the power to tame this current bout of inflation—whether their efforts have a ceiling, if you will—and what alternatives it might have considered, but discarded?
Ask HN: How much of inflation is caused by supply rather than demand issues?
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Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#2The supply problems were a lot worse 1-2 years ago.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#3Supply issues are a bit of red herring. Compare industries with more and fewer supply issues and you'll find that it doesn't play an oversized role.
The main catalyst, and by that I mean essentially the only catalyst, is monetary policy.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#4I am just going to take a minute to point out that 18 months ago I said the inflation wasn't transitory, it was long term, and everyone told me I was crazy when I said the government was lying about it being transitory.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#5I am just going to take a minute to point out that 18 months ago I said the inflation wasn't transitory, it was long term, and everyone told me I was crazy when I said the government was lying about it being transitory.
I don’t think the Fed anticipated the war in Ukraine.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#6Supply issues are a bit of red herring. Compare industries with more and fewer supply issues and you'll find that it doesn't play an oversized role. The main catalyst, and by that I mean essentially the only catalyst, is monetary policy.
Well, that and the obvious price-gouging tactics.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#7Fuel prices have skyrocketed in the past with little impact on inflation.
I think one could argue they exacerbate inflation - rising prices can trigger more price increases, but in the end its money supply that drives an erosion of the value of currency.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#8I am just going to take a minute to point out that 18 months ago I said the inflation wasn't transitory, it was long term, and everyone told me I was crazy when I said the government was lying about it being transitory.
I don’t think the Fed anticipated the war in Ukraine.
This was during the war in the Ukraine, which was one of the excuses people gave for inflation being "tranistory" and that things would be sorted out soon.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#9This inflation is not created by a lack of supply (not anymore at least), or by an excess of demand... it's an inflation created by excess of profits. and the fed decided to fight it by fighting workers. it makes no sense, really.
Re: Ask HN: How much of inflation is caused by supply rather than demand issues?
#10Full disclosure: My understanding of economics is heavily influenced from what's called the Austrian School. On that understanding, we have two main factors that are contributing to the rise in prices. Only one of them is, properly speaking, inflation.
Putting the subject of inflation aside for the moment, the first cause is the destruction of capital. Capital destruction, which broadly speaking includes our ability to transport goods, has curbed the economy's productive capacity. We produce less, and so what we are able to produce becomes more dear. This is the supply issue, but it's not inflation.
The second cause is inflation. The definition of inflation I'm using is the increase in the money supply. Until very recently, this is what the Fed (and other central banks) have been doing. More money chasing the same amount of goods—all else being equal—causes a rise in prices. This is the demand issue.
I realize that this understanding and use of the term inflation isn't mainstream. But I think it makes it easier to understand what is going on.