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Research: Consumer Demand Key Driver of U.S. Inflation

As per researchers at the Federal Reserve Bank of New York, the University of Maryland, and Harvard University, supply chain bottlenecks and labor shortages have been a key factor driving inflation in the United States, though surging consumer demand has helped drive prices up over the past two years. 

According to a report, in a blog post on Wednesday Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized the findings of a study published in June that found an increase in demand from consumers for all kinds of goods during the time of the pandemic was the main cause of roughly 60% of the inflation across the United States between 2019 and 2021.

Supply shocks, which include shortages of workers, materials, and shipping containers needed to make and move goods across the globe, contributed to 40% of inflation in model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints.

The study found that without supply bottlenecks, inflation within the United States would have been 6% by the end of 2021 in contrast to 9%. The study shows that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe.

“The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” di Giovanni wrote.

The research provides a possible solution to a question that politicians and policymakers have been wrestling over the causes of inflation, which slowed slightly to 8.5% in July.

Although many economists point to the government’s generous spending to support Americans during the pandemic as a key factor driving inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine.

There have been signs recently that supply chain shocks are easing, and Mr. di Giovanni said that could be good news for the U.S. inflation rate.

In the absence of new energy shocks or other surprises, it’s possible that the easing of bottlenecks in the supply chain, he said, will cause a substantial drop in inflation in the near term.

This story originally appeared on The New York Times.

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Hi, you might find this article from Modern Campground interesting: Research: Consumer Demand Key Driver of U.S. Inflation! This is the link: https://moderncampground.com/usa/research-consumer-demand-key-driver-of-u-s-inflation/