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NY Fed On 40% Of US Inflation From Supply-Side Issues

US
  • Following yesterday’s NY Fed note that pass-through of import prices and wages to domestic PPI more than doubled during the Covid period (coefficients below), a note from this morning finds that 60% of US inflation over the 2019-21 period was due to demand and 40% from supply-side issues.
  • i.e. “our work shows that inflation in the U.S. would have been 6% instead of 9% at the end of 2021 without supply bottlenecks. […] In the absence of any new energy or other shock, it is therefore possible that the ongoing easing of supply bottlenecks will cause a substantial drop in inflation in the near term.”
  • Re yesterday’s note, the summary was that a 10% increase in import prices and wages associated with traded sector PPI prices rising 7.4% in 2021 vs 3% in 2013-20 or 3.4% vs 1.6% for non-traded. One implication of which is that USD strength could have a greater dampening effect than a relatively closed economy would normally indicate.
  • Link: https://libertystreeteconomics.newyorkfed.org/2022/08/how-much-did-supply-constraints-boost-u-s-inflation/
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