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Push – Pull

01/05/2022

Like the pandemic, inflation seems to have appeared suddenly.  First, there was the sudden increase in government spending last year to combat the virus.  Second, there was a similar increase in the money supply by the Fed for the same reason.  Both examples energized “demand-pull” inflation.

In addition, supply chain problems increased costs.  Plus, the extreme climate events of last year pushed prices up.  For example, the Texas freeze last February drove up demand for natural gas, and Hurricane Ida in August reduced supply, leading to record high prices by October.  Another example is the worst freeze in 25 years in Brazil drove up coffee prices worldwide.  Both examples energized “cost-push” inflation.

This perfect storm of demand-pull and cost-push caused inflation to be reach 6.8 percent relatively quickly by November.  Most of this inflation in the prices of goods, not services, but that can be expected to rise.

One difference with this round of inflation is the hyper-awareness of it.  Maybe, that just reflects our hyper-sensitivity to everything these days?

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