The Supply Chain Cause for Inflation Part 3 of 3

Apr 15, 2022 | Finconomics 101

In the third part of our 3-part series on inflation (part 1 & part 2), we explore how supply chain disruptions effect inflation (probably most relevant to our current situation). 

This is what the press refers to as “supply chain disruptions”, really just a fancy way of saying that the suppliers don’t have enough to sell, providing them an opportunity to charge higher prices. This could be caused by a drought (food shortage), closed oil pipelines (gas shortage) or a lack of employees to work in the factories and to drive the delivery trucks (maybe because of covid fears or because of government assistance that has left them flush with cash). Notably, raising interest rates to check inflation caused by supply constraints is designed to lower demand to meet lower supply (bringing prices back down) when the real challenge is to increase supply to meet normal demand levels (something the Fed is not equipped to deal with).   

In conclusion of our 3-part series, it is better not to try to flatten the economy’s natural up and down cycles by manipulating interest rates because this often leads to excesses that are even more difficult to manage. It would be better if consumers and businesses were not fooled into borrowing & spending more because of lower interest rates but, rather, made financial decisions based on their income levels guided by their long-term saving and investing goals. Also, it would be better if the Fed did not seek to put money into consumers’ pockets because this creates artificial demand that causes inflation while also decreasing the labor force’s motivation to work, thus decreasing supply and further fueling inflation.

Follow us on LinkedInTwitter, and Facebook!

Disclaimer of Liability: Although the information in this post has been obtained from sources NBE Media LLC believes to be reliable, NBE does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. NBE Media LLC’s analyses and opinions are not a guarantee of the future performance of the economy nor any industry, company or security. NBE Media LLC disclaims all liability for any misstatements or omissions that occur in the publication of this post. In making this post available, no client, advisory, fiduciary or professional relationship is implied or established. While this post is intended to provide an relevant economic analysis, it cannot be used as a substitute for independent investigations and sound business judgment.
Restaurant Research

Email Sign-up

15 Second Posts

Powell Faults an Overheated Labor Market for the Need to Hike Rates Again

Despite growing evidence of systematic bank risks associated with the Fed’s aggressive rate hikes over the last year, Powell hikes another 25 bps anyhow, citing labor pressure as the culprit. However, in the real world, labor conditions are already improving.

Fixed-Income Issuance Says a Lot About Economy

Total U.S. fixed income (FI) issuance declined -34% y/y to $8.8 trillion during 2022 as interest rates ramped up.

Bank Deposits Growing Much Faster than Business Loan Demand

Banks have been parking excess deposits in various forms of government debt that are subject to interest rate risk & in some cases, risky crypto bets. This is causing systematic risk.

Nerdwallet Survey Shows an Indebted & Very Stressed Consumer

Consumers are combating the higher price of living & higher interest rates by driving less, buying store brands & taking on more debt.

The United States of America is Worth Saving

Americans need to be reminded about our heritage as the single most productive nation as measured by GDP/person with a unique capability to bless the entire world if we can simply get back to business.

Should Private Banks Go Extinct?

Since the 2008 Great Recession, 134 banks with assets of $1.25 Trillion have been closed by regulators. At the same time, the Fed’s ballooning balance sheet now amounts to nearly 50% of total domestic bank deposits.

What Happened to Silicon Valley Bank?

Don’t assume that SVB’s difficulties are symbolic of the entire banking industry.

What Does the End of the Petrodollar Mean?

The Saudi minister of finance announced that the Kingdom was ending the petrodollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal”. Yikes!

Senator Kennedy Schools Country on Economics 101

We have a choice of how to tame inflation, cut government spending, or throw people out of work.

Inflation is Marginalizing Purchasing Power from the Lower-Income Demo

As households with annual incomes >$70k drive 62% of total food-away-from-home sales, it is more important than ever to focus on this demo especially as spending from the lower-income demo slows.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company