In September 2020 Jay Powell announced that the Federal Reserve would adjust how it reacts to inflation, one of its chief mandates, and allow inflation to run hotter for longer. The expectation is that it will be several years before the Fed raises interest rates. Traditionally, elevated rates of inflation indicate the economy is operating at full capacity and may be in danger overheating. Following the COVID recession of 2020 the Fed is trying to create a positive environment for the recovery.
In the Spring of 2021 signs of inflation are abundant. Since the fall of 2020 commodity prices had risen dramatically. Lumber prices had soared as supply constraints limited what was available, especially as housing prices went up and building accelerated. Copper surged to new record highs. Wheat, corn and other food commodities went up as the economy reopened and supply couldn’t keep up with demand.
Among tech businesses a shortage of computer chips affected the building of everything from cars to exercise equipment. “Just in time” supply chains showed increasing strain.
To top things off, a gasoline pipeline was held hostage by a ransomware attack in early May 2021. The result was gasoline shortages and higher prices throughout the east coast US.Continue reading ““Rising Prices in the Economy”: Inflation Post COVID”