Prior to last year, starting in 1992, the US consumer price index, U.S rose above the annual historical average of 3.2% only 3 times, reaching a high of 3.8% in 2008. Each time it went above the average, it fell the following year. Today, inflation is 8.5%!
But anybody should have seen this coming. The perfect inflationary scenario had been created:
<1. strong>Government spending
Government spent like there was no tomorrow and are planning to spend trillions more in the next few years. The dollar printing machines went hot and newly printed dollars will be sloshing around the economy. All this money available has been chasing mone limited goods and services and will drive prices higher in the future.
2. Low interest rates
The Fed made borrowing money dirt cheap over decades. Despite the recent rate hikes, borrowing costs are still quite low, which adds to the spending frenzy going on right now.
3. The pandemic
The lockdown created demand for goods and services. While things were closed, people saved cash. Now, they are back to spending money. They have to make up what they missed during lock down and even more.
4. Supply chain constraints
Due to labour shortage and other issues, there are not enough raw materials, finished products and available services, limiting the supply of those goods and services as demand surges. This leads to higher prices.
So, why have so few people have seen the inflation coming? Including the central bankers and economic experts.
Sven Franssen