How Long Will High Inflation Last? Hyperinflation fears have reached fever pitch, and when economic hysteria strikes it’s best to approach things in a practical and sensible manner. But amid all of this panic and noise, only a fraction of people have focused on whether inflation numbers like 6.8% year-on-year are temporary or here to stay – I belong to “Team Transitory”. Since April of 2020, most of us have witnessed an upswing in demand for goods (as people spend more time working, exercising, and playing from home), with concurrent decreases in services (people are spending less time out). With increased goods demand come massive supply chain bottlenecks; more money chasing fewer available goods leading to inflation; this trend is global in scale.
Here are the U.S. expenditure numbers that demonstrate how demand for goods has skyrocketed while service demand remains slightly below where we were before the pandemic:
Separate from supply chain bottleneck issues, OPEC and other oil producing cartels have coordinated a decrease in oil production which has resulted in higher gasoline and diesel prices across the economy. Meanwhile, here in the U.S. we have seen signs of a housing bubble developing for several years as foreign and domestic investors flooded the market with first-time home buyers, pushing up housing costs for limited supply units.
Why am I on Team Transitory? Supply chain disruptions appear to be demand versus supply economics 101 issues and I expect industry will figure it out soon enough. Already we are seeing evidence of that with gridlocked shipping container inventories declining gradually as proof. Oil prices only need one cartel defector to help their decline while housing could stabilize if we start seeing Fed raise historically low interest rates again as promised, starting as soon as 2022 to combat inflation.
But these estimates are educated guesses informed by history, data, and the opinions of some economists I respect – yet nobody truly knows exactly what will happen here – micro and macroeconomic conditions can change quickly even during relatively calm economic periods – something we are living through now with frequent pandemic-induced disruptions causing lasting inflationary conditions that none of us would prefer.
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