Wednesday, October 4, 2023
  • Login
CEO North America
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel
No Result
View All Result
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel
No Result
View All Result
CEO North America
No Result
View All Result

Supply, Demand, and Inflation: The Big Picture

in Business
Supply, demand, and inflation: the big picture
Share on LinkedinShare on WhatsApp

Thankfully, inflation is slowing down. Prices rose only 0.1 percent in November, yielding the lowest annualized inflation rate (7.1 percent) in a year. Core inflation, which excludes volatile food and energy prices, rose 0.2 percent (6.0 percent annual). While it’s too soon to celebrate, there’s hope for continued disinflation.

Let’s take a look back. Where did all this inflation come from? There are two broad possibilities. The first is expansive aggregate demand (loose money). The second is flagging aggregate supply (productivity problems). A big-picture analysis shows that both matter, but demand matters more.

Remember, aggregate demand comes from the dynamic version of the equation of exchange: growth in effective monetary expenditures (gM+gV) must equal growth in nominal GDP (gP+gY). Before COVID, we were on a steady nominal GDP (NGDP) growth path of 5 percent per year. After the COVID shock, nominal spending growth increased to approximately 10 percent per year. Aggregate demand is obviously elevated. But what’s going on under the hood?

Figure 1: NGDP

- supply, demand, and inflation: the big picture

When checking real (inflation-adjusted) GDP, we see a similar pattern to NGDP. Pre-COVID, the economy’s growth path was somewhere between 2.5 and 3 percent. The post-COVID equilibrium ranges from 1.7 and 2.0 percent. At most, that’s 1.3 percent per year lower in real income growth. Let’s assume the dropoff can be explained entirely by productivity problems, such as supply-chain issues. That means supply-side woes are adding 1.3 percent to inflation. That’s not trivial, but neither is it the lion’s share.

Figure 2: RGDP

- supply, demand, and inflation: the big picture

Unemployment is perhaps the strangest indicator. Before COVID, the unemployment rate was very low, at 3.6 percent. After the COVID craziness, it increased to…3.7 percent, which is also very low! Despite lackluster growth, the US economy appears close to full employment. There’s a complicating factor, however: labor force participation permanently declined after COVID, partly due to generous government transfer payments.

Getting back to supply and demand, we can easily have full employment and surging inflation if aggregate demand is too high. It’s harder to see how this can work if the cause is low aggregate supply. You’d expect diminished productivity to cause an uptick to unemployment. That hasn’t been the case so far.

Figure 3: Unemployment

- supply, demand, and inflation: the big picture

Figure 4: Labor Force Participation

- supply, demand, and inflation: the big picture

Now let’s consider productivity. The best measure is probably total factor productivity, but this data series hasn’t been updated for the COVID and post-COVID years. Instead, we’ll look at labor productivity, in terms of output per hour. (We’re measuring averages here, not marginal contributions.) Perhaps counterintuitively, productivity spikes during COVID. This actually makes economic sense. Many fewer workers were working. If businesses sent home the least productive workers first, as one might expect, those that remained would tend to have a higher average level of productivity. 

Figure 5: Average Labor Productivity

- supply, demand, and inflation: the big picture

Before COVID, labor productivity grew between 1 and 3 percent per year. Since then, it’s fluctuated much more widely, frequently venturing into negative territory. The average over the past eight quarters is -0.68 percent. The most recent figure, Q32022, is back into positive territory (0.8 percent). This reinforces a partial productivity story. 

Supply-side issues are a problem, but in terms of magnitudes, it just doesn’t make sense to call them the chief contributor.

Courtesy American Institute for Economic Research. By Alexander William Salter. Article available here.

Tags: economic researchinflationsupply and demand

Related Posts

Us car sales climb in q3
Industry

US car sales climb in Q3

Dow falls 400 points following rising treasury yield
Business

Dow falls 400 points following rising Treasury yield

Wework stock sinks after interest payment skip announcement
Business

WeWork stock sinks after interest payment skip announcement

Automakers lay off 500 workers due to uaw strike
Industry

Automakers lay off 500 workers due to UAW strike

Drug makers spend $500 million on weight loss drug marketing in 2023
Business

Drug makers spend $500 million on weight loss drug marketing in 2023

Jetblue to increase flight attendant pay
Business

JetBlue to increase flight attendant pay

Sphere entertainment shares rise 11% after opening show
Business

Sphere Entertainment shares rise 11% after opening show

Rivian beats q3 ev delivery expectations
Business

Rivian beats Q3 EV delivery expectations

United airlines pilots ratify new contract deal
Industry

United Airlines pilots ratify new contract deal

Toys ‘r’ us to try new expansion model
Business

Toys ‘R’ Us to try new expansion model

No Result
View All Result

Recent Posts

  • Chipotle tests robot assembly line
  • Blistering summer changes Americans’ opinions on climate change
  • Intel to launch IPO for Programmable Solutions Group
  • Beyoncé to revitalize slow December box office
  • US car sales climb in Q3

Recent Comments

  • Juul Unveils Cutting-Edge Vaping Tech: Navigating FDA Uncertainties – iStreetPark Blog on Juul hopes FDA won’t ban its new high-tech vape
  • CEO North America, August - September 2023 - CEO North America on Interviews – CEO North America, October – November 2022
  • CEO North America, August - September 2023 - CEO North America on CEO North America, December 2022 – January 2023
  • CEO North America, August - September 2023 - CEO North America on Why Tech Companies Are Moving to Texas and Florida
  • CEO North America, August - September 2023 - CEO North America on CEO North America, February 2023 – March 2023

Archives

Categories

  • Art & Culture
  • Business
  • CEO Interviews
  • CEO Life
  • Editor´s Choice
  • Entrepreneur
  • Environment
  • Food
  • Health
  • Highlights
  • Industry
  • Innovation
  • Issues
  • Management & Leadership
  • News
  • Opinion
  • PrimeZone
  • Printed Version
  • Technology
  • Travel
  • Uncategorized

Meta

  • Log in
  • Entries feed
  • Comments feed
  • WordPress.org

  • CONTACT
  • GENERAL ENQUIRIES
  • ADVERTISING
  • MEDIA KIT
  • DIRECTORY
  • TERMS AND CONDITIONS

Editorials –
stuart.james@ceo-na.com

Advertising –
advertising@ceo-na.com

NEW YORK

110 Wall St.,
3rd Floor
New York, NY.
10005
USA
+1 212 432 5800

 

MEXICO CITY

Paseo de la Reforma 296,
Floor 38
Mexico City
06600
MEXICO

HOUSTON

1201 Fannin St.
Suite 262
Houston, TX
77002
USA

  • CONTACT
  • GENERAL ENQUIRIES
  • ADVERTISING
  • MEDIA KIT
  • DIRECTORY
  • TERMS AND CONDITIONS

Editorials –
stuart.james@ceo-na.com

Advertising –
advertising@ceo-na.com

NEW YORK

110 Wall St.,
3rd Floor
New York, NY.
10005
USA
+1 212 432 5800

HOUSTON

1201 Fannin St.
Suite 262
Houston, TX
77002
USA

MEXICO CITY

Paseo de la Reforma 296,
Floor 38
Mexico City
06600
MEXICO

CEO North America © 2022 - Sitemap

No Result
View All Result
  • Home
  • News
    • Business
    • Entrepreneur
    • Industry
    • Innovation
    • Management & Leadership
  • CEO Interviews
  • Opinion
  • Technology
  • Environment
  • CEO Life
    • Art & Culture
    • Food
    • Health
    • Travel

© 2023 JNews - Premium WordPress news & magazine theme by Jegtheme.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

Warning: array_sum() expects parameter 1 to be array, null given in /home/ceonacom/public_html/wp-content/plugins/jnews-social-share/class.jnews-social-background-process.php on line 111