There’s no shortage of news coverage on the pandemic recovery: vaccination rates, economic outlook, job reports. One such topic receiving an abundance of coverage and hype is inflation.
If you’ve followed along at all, the coverage on inflation can make it out to be a nebulous, impending doom that will wreak financial havoc for us all. While inflation does pose a real potential risk to our economy, the current outlook points to a temporary increase in inflation caused by the unprecedented challenges of reopening a post-pandemic economy rather than a long-term trend that should cause worry.
The largest contributor to inflation, and one that the Federal Reserve Board has been warning about for months, is the misalignment of supply and demand. Supply chains were slowed down over the last year as life as we knew it ground to a near halt. This spring, as stimulus checks arrived and cities began quickly reopening (thanks, vaccines!), consumers were eager to spend money. Demand outpaced the available supply in many sectors (think cars, lumber, etc.) causing product shortages and price increases. This mismatch in supply and demand is temporary as supply chains ramp up to meet the post-pandemic demand. As supply and demand smooth out, prices and inflation should shift down to their normal levels.