Obligatory inflation post!

I read this great overview of where we’re at now and how to think about it. (Click if you want way more detail than this short post.)

So why are we seeing inflation? It boils down to a pretty simple equation:

Fiscal stimulus to avoid a recession (good) + supply chain nightmares (bad) = demand outstripping supply (life)

Or, to use a technical term, inflation (Econ 101).

(Probably mostly the second part of that equation due to the state of supply chains* and production capacities right now. But you can read what an actual economist has to about these two “competing hypotheses” behind this substack paywall)

Should we be worried?

Short answer: no.**

As the knots in the supply chain unwind things should cool down. We have also been below the Fed’s inflation target for a while now so we are still below where we probably should have been, it’s just happening in a short interval which makes it more noticeable and painful.

(But don’t take my word for it, listen to TWO economists talk about this idea I stole from them)

*Speaking of the state of supply chains: “The Port of Rotterdam is the largest in Europe and one of the most automated in the world. Port officials expect that Rotterdam will be backed up through the end of 2022.”

**That’s not to say we won’t have to start worrying, but it’s not time for that yet.