Watch out for the ketchup bottle economy | Financial Times


As the inflation rate rises grade It seems to belong to another era, and in some corners of the market and economics, restlessness is turning into mutiny. You can almost hear the murmur of “They are crazy!” Regarding government leaders’ adherence to the accelerator’s footsteps.

However, these leaders should not be right. The fundamental reason for the current increase in inflation is also why we should expect deflationary pressures to become increasingly prominent.

The main explanation for the current price pressure is that the epidemic has caused constraints in the global supply chain.The concept of one “Bottleneck Economy” It captures the current how to glue products and the labor market.

In the commodity market, the global blockade has freed the supply chain from severe damage. Empty containers were placed in the wrong place (the recent blockage of the Suez Canal did not help), and when people were trapped at home, spending patterns changed.As a result, freight Soar,price is accelerate Used for raw materials and manufacturing inputs, such as wood and semiconductors.

In the labor market, the latest Disappointing U.S. employment data It shows that even if the vacancy rate is high, there will be obstacles in recruiting methods. If job vacancies are not where the workers are, or require other skills than the unemployed can provide, then even if the employment rate remains below pre-pandemic levels, wage pressures will increase.

However, if the supply side of the economy suffers from bottlenecks, then a similar analogy is a glass bottle of ketchup. You can shake and tap everything you want without producing any results-until suddenly everything is flooded and your food is overwhelmed by ketchup.

The same can happen in the currently blocked supply chain. The containers will eventually be moved where they are needed. If the rate is still high, the new ship will enter service. From forests to semiconductor foundries, output will increase. As wages rise, more workers will move or train to find new jobs.

This is nothing new. Freight and commodity prices are always highly cyclical: it is not uncommon for global shipping costs to double or triple within one year and similarly drop in the next year. History shows that supply overreaction compensates, like ketchup bottles. Today’s shortage will lead to tomorrow’s oversupply, so the price with the fastest price increase today will face the strongest challenge. DisInflationary pressures next year.

The other main reason people are worried about inflation is that, at least in the United States, the stimulus plan to stimulate demand is more extensive than at any time in the world. Even in Europe, governments have chosen unprecedented deficit spending.

The standard argument is that if the stimulation is too strong, the result will be overheating. But even if this is true, it is not all. Excellent financial support is just that. When the pandemic finally abates, the vaccine will be withdrawn. We will observe the root causes of all fiscal austerity policies.

If you think that even if the current fiscal stimulus is offset by the continuing shortage of private demand, it will still cause inflation, but you can’t deny that its withdrawal is DisDespite being compensated by the hoped surge in private spending, inflation itself still exists.

Relative timing is important, but downside risks far outweigh upside potential. If the decline in public spending coincides with a rebound in private demand, then a small period of bottleneck economy will apply until the budget returns to normal. However, if consumers and companies remain cautious as the government gradually removes stimulus measures, and the savings rate remains high, demand will fluctuate as the supply capacity recovers. The result will be inflation and prolonged underemployment-which is politically toxic after the shock of the shutdown.

All of this, we should add another more speculative consideration. As we all know, total productivity tends to be procyclical-when demand is high, the private sector has found a way to squeeze more resources out of existing resources. In addition, the last decade has proved that high demand puts people who were previously inactive to work. These findings indicate that it is possible to send a signal to the US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jay Powell. If demand pressure itself creates new supply capacity, it is wrong to seize the opportunity.

In theory, expectations of rising inflation may be self-fulfilling. But in the face of the upcoming supply of ketchup bottles and unprecedented fiscal austerity, it is strange that such expectations are likely to be established.

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