But policymakers have become increasingly wary that price gains that are too quick for comfort might linger. While they were willing to overlook a burst of temporary inflation, long-lasting gains would be more of a problem, potentially spurring the Fed to raise interest rates to cool off demand and contain price pressures.
Understand the Supply Chain Crisis
Card 1 of 5Covid’s impact on the supply chain continues. The pandemic has disrupted nearly every aspect of the global supply chain and made all kinds of products harder to find. In turn, scarcity has caused the prices of many things to go higher as inflation remains stubbornly high.
Almost anything manufactured is in short supply. That includes everything from toilet paper to new cars. The disruptions go back to the beginning of the pandemic, when factories in Asia and Europe were forced to shut down and shipping companies cut their schedules.
First, demand for home goods spiked. Money that Americans once spent on experiences were redirected to things for their homes. The surge clogged the system for transporting goods to the factories that needed them and finished products piled up because of a shortage of shipping containers.
Now, ports are struggling to keep up. In North America and Europe, where containers are arriving, the heavy influx of ships is overwhelming ports. With warehouses full, containers are piling up. The chaos in global shipping is likely to persist as a result of the massive traffic jam.
No one really knows when the crisis will end. Shortages and delays are likely to affect this year’s Christmas and holiday shopping season, but what happens after that is unclear. Jerome Powell, the Federal Reserve chair, said he expects supply chain problems to persist “likely well into next year.”
There are some reasons to believe that today’s price pop will fade. Households are sitting on huge savings stockpiles amassed during the pandemic, but should theoretically spend those down now that government support programs like expanded unemployment insurance have fully or mostly lapsed.
If demand moderates, it could open the door for a return to normal, as supply chains catch up. To the extent that suppliers have responded to this moment by ramping up their productive capacity, some prices might even fall.
But the timing and extent of that return to balance is a wild card. In the meantime, Republicans are pointing fingers at Mr. Biden and Democrats, saying they are to blame for the run-up in prices because they handed checks to households and enacted other pandemic-tied policies. They have labeled the moment “Bidenflation.”
The White House has tried to emphasize that higher prices are coming at a time when the country is staging a rapid economic rebound from a once-in-a-century disaster. And Mr. Biden has said that his new policies, including an infrastructure bill that cleared Congress last week, will over time expand capacity and help to cool inflation.