An Update on "post-Covid" Inflation

    The Covid-19 pandemic has fostered an “unconventional recession,” as stated in “Pandemic Prices: Assessing Inflation in the Months and Years Ahead,” a piece written by Jared Bernstein and Ernie Tedeschi, White House economic policy advisors. This means that in an effort to curb the effects of the recession on the American public, the U.S. government must pave a path to modern economic recovery for which there is not a particularly strong historical example. However, despite these unique circumstances, inflation, a term not uncommon to citizens, remains a prominent threat to national economic security. In fact, the New York Times, reported an inflation rate of 7.9% in February of 2022, a number that far exceeds what policymaker’s deem acceptable (~2%).

    Though what is it that makes inflation imposed by the pandemic unfamiliar to policymakers? According to the Simon Business School at the University of Rochester, there are actually a few factors. One reason being that demand has skyrocketed, and producers can’t keep up with it. Demand fell significantly during the pandemic, so consequently the quantity supplied did as well. Since Americans were deprived of all unnecessary services and goods for an extended period of time, and that for the average-middle class American meant a general increase in savings. In the end, there was an excess of quantity demanded and a shortage of supply (made worse by supply chain disruptions).

    Secondly, the “base,” or growth rate of prices was very low in April of 2020 as the economy saw the first effects of the pandemic. Since the average prices decreased intensely before they began to climb back up again, the months following the beginning of the pandemic involved an unstable economic field. This is described as the  base effect. Though this problem is beginning to remedy itself as the “base” month of April 2020 drifts further away and a new economic cycle emerges.

    This is a very simplified version of what has happened in the economy in the past years, however. It must also be acknowledged what specific legislative and international moves such as the Organization of the Petroleum Exporting Countries’ limitations on exports, Biden’s “moratorium on federal oil and gas leases,” and “Trump-era tariffs” have done to contribute to inflation of goods such as gas.

Simon Blog: Dean's Corner A Closer Look at Inflation

Pandemic Prices: Assessing Inflation in the Months and Years Ahead | The White House

Surging U.S. Inflation Raises Stakes as War Pushes Up Prices

Questions:

1. Will Adam Smith's "invisible hand" be sufficient in sorting out such a unique economic crisis?

2. How do the CARES Act and American Rescue Plan factor into the financial status of the average American post-pandemic?

3. Do you think the "pent-up demand" or "supply chain disruptions & misalignments" that contributed more to the issue?