San Francisco Fed: "Supply Issues Account for Half of US Inflation"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Hyunjung] The Federal Reserve Bank of San Francisco released a study showing that supply constraints worsened by the Ukraine war this year account for about half of the rapid rise in U.S. inflation.

On the 21st (local time), Bloomberg News reported that Adam Hale Shapiro, an economist at the San Francisco Fed, stated in a letter that "demand accounts for one-third of the overall increase."

Economist Shapiro explained, "These results show that factors other than demand explain about two-thirds of the recent rise in inflation, highlighting economic risks."

Shapiro derived these results by analyzing over 100 categories of goods and services in the personal consumption expenditure price index over more than 30 years.

He emphasized, "Supply shocks raise prices and suppress economic activity, so if supply-related factors are widespread, there is a higher risk of entering a period of low growth and high inflation."

Earlier in March, the U.S. personal consumption expenditure (PCE) price index surged 6.6% year-on-year, marking the highest level in 40 years. Some economists and policymakers pointed out that the inflated stimulus bills caused a surge in consumer demand, while others saw external major drivers such as supply chain disruptions and labor shortages.

According to Shapiro's analysis, supply-driven factors contributed 2.5 percentage points more to inflation than the pre-pandemic average, while demand-driven factors contributed only 1.4 percentage points more. He also stated that supply and demand factors contributed almost equally to the acceleration of core PCE inflation.

This content was produced with the assistance of AI translation services.