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Inflation Talk

Select articles concerning supply & demand imbalances stemming from inflation and labor shortages. Some links may require a subscription to access.

On the demand side, consumer spending on durable goods has risen to levels 15-25% above trend due to the boost to disposable income from fiscal support, the unavailability of many services, and pandemic preference shifts. The further surge in demand for durables this year likely reflects the impact of the stimulus checks, which past experience has shown, are disproportionately spent on durables and used for down payments on autos.

- "Supply Chain Disruptions and the Inflation Outlook", Goldman Sachs Global Investment Research


Quitting gets a bad rap in life, as it’s associated with pessimism, laziness, and lack of confidence. In labor economics, however, quits signify the opposite: an optimism among workers about the future; an eagerness to do something new; and a confidence that if they jump ship, they won’t drown but rather just land on a better, richer boat.

- "What Quitters Understand About the Job Market", Derek Thompson, The Atlantic


Some employees have enjoyed the flexibility of working from home so much that, according to one survey, 39% of people said they would consider quitting if their employers weren’t flexible about remote work moving forward.


While benefitting workers, higher labor costs can have consequences for employers in the form of narrower profit margins and missed sales if a restaurant section remains closed or orders can’t be filled quickly because of a staffing shortage. And when they do raise wages, employers are attempting to pass some of the higher costs on to customers, which could be contributing to the current upsurges of inflation. All those factors act as a potential brake on what is expected to be rapid economic growth in the second half of 2021.

- "Tight Labor Market Returns the Upper Hand to American Workers", Eric Morath and Greg Ip, The Wall Street Journal


Central bank leaders insist that the recent round of price pressures will subside once short-term supply chain bottlenecks clear and the 2020 economic shutdown period is no longer part of the year-over-year comparisons.
But El-Erian said he sees growing evidence that the Fed is wrong.


Bringing in the economic growth component changes the picture entirely…when inflation was rising, but economic growth was in its lowest quartile, stocks fell. However, when inflation was rising, but economic growth was in its highest quartile, stocks not only rose; they rose at a faster clip than when inflation was falling in that same growth zone.

- "Pressure Drop: Easing Inflation Pressures Ahead?", Liz Ann Sonders and Kevin Gordon, Charles Schwab


The problem isn’t a dearth of jobs. As of the end of April there were 9.3 million job openings by the Labor Department’s count, and businesses all over are complaining about how hard it is to get workers. Some of the more popular explanations are that enhanced and extended jobless benefits have reduced recipients’ incentives to look for work and that ongoing difficulties obtaining child care have dissuaded many women in particular from returning to work.
Arguments blaming one or the other fall along predictable ideological lines, but there is evidence that both are weighing on the job market. More than one thing can be true about the job market at once, and, considering the unusual set of circumstances the pandemic brought about, other factors could be contributing to the hiring difficulties too.

Inflation most impacts lower earners, who spend more of their average dollar on gas, food and other items that may be rising in price, Foster said. Wealthier individuals, who tend to hold more financial assets like stocks or homes, may be better able to offset the impact of inflation, he added.


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