Super interesting, Ryan. I wonder what you think about how the short run elasticity of supply factors into this. I wonder if inflationary outcomes would be different with a similar growth in GDP but mechanized primarily through a supply shock (if that’s a mechanism that can exist?). It seems to me that intuitively the short run elasticity of supply is quite inelastic, leading to the outcomes we’re seeing, but short run demand elasticity may be more elastic, which could have interesting implications for inflation. Luckily I can walk down the hallway and ask you in person! Thanks for sharing.
Scott, thanks for your comment. I do think the supply chain issues matter--how could they not, right? But as I'll flesh out more in future posts, I still think the demand side is the key driver here. Without the anomalous growth rates on the demand side, the supply chain issues wouldn't be as constraining. We might see inflation in certain sectors, but certainly not enough to drive the CPI up to 7 percent (recall, there are over 80,000 goods in the CPI basket). Next week I'm diving into consumption data, and there you really see how unusual things have been the past 15 months or so.
Super interesting, Ryan. I wonder what you think about how the short run elasticity of supply factors into this. I wonder if inflationary outcomes would be different with a similar growth in GDP but mechanized primarily through a supply shock (if that’s a mechanism that can exist?). It seems to me that intuitively the short run elasticity of supply is quite inelastic, leading to the outcomes we’re seeing, but short run demand elasticity may be more elastic, which could have interesting implications for inflation. Luckily I can walk down the hallway and ask you in person! Thanks for sharing.
Scott, thanks for your comment. I do think the supply chain issues matter--how could they not, right? But as I'll flesh out more in future posts, I still think the demand side is the key driver here. Without the anomalous growth rates on the demand side, the supply chain issues wouldn't be as constraining. We might see inflation in certain sectors, but certainly not enough to drive the CPI up to 7 percent (recall, there are over 80,000 goods in the CPI basket). Next week I'm diving into consumption data, and there you really see how unusual things have been the past 15 months or so.