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Free AccessMNI: Just One-Third of High US Inflation Is Demand: SF Fed
Demand pressures account for just a third of the recent U.S. PCE inflation run-up, signaling price pressures may remain tied to how fast supply bottlenecks are resolved, according to a San Francisco Federal Reserve report published Tuesday.
Supply-side issues account for about half of elevated prices, with demand driving another third and the remainder coming from products not clearly tied to either, according to research by economist Adam Hale Shapiro.
"The large impact of supply factors implies that inflationary pressures will not completely subside until labor shortages, production constraints, and shipping delays are resolved. Although supply disruptions are widely expected to ease this year, this outcome is highly uncertain," he wrote in a paper for the SF Fed's "Economic Letter."
"Because supply shocks raise prices and suppress economic activity, the prevalence of supply-related factors raises the risk of entering a period of low growth and elevated inflation," he wrote.
Shapiro tested for whether products showed both rising prices and quantities that suggest demand-driven inflation, or whether prices and quantities moved in opposite directions that point instead to supply-side inflation. Demand-driven inflation also appears to be diminishing in the most recent data, he found.
Some ex-Fed officials have warned that inflation expectations are already un-anchored. (See: MNI: Inflation Expectations Already Unmoored -Ex-Fed Officials)
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.