Inflation shock #2?

A twilight in the Red Sea

Issues contributed:

• Questionable means behind the “victory over inflation”.

• The repetition of ‘double-peak’ inflation of the 1970s looks ever more likely.

• The war between Israel and Hamas may be reaching a tipping point leading to a rapid escalation.

In March 2021, we at GnS Economics warned that:

There have been reports of serious bottlenecks in the transport of vast quantities of commodities, which has lifted prices. So, inflation has been running higher than shown in the official figures, but the real problems are likely to emerge when economies re-open and conditions move towards a “new normal”, which is now occurring in the U.S. […]

Inflation can thus suddenly rise well above the “moderately above 2%” threshold which some central bankers, such as Fed Chair Jerome Powell, currently consider as their target.

Just a month later this occurred with the (annual) U.S. inflation spiking to 4.2%, starting the inflation crisis.

Essentially, the inflation crisis flared up because of combination of lockdowns, massive money printing by the Federal Reserve, the stimulus checks (see, e.g., my piece at the Epoch Times) and very rapid rise in freight rates. War between Russia and Ukraine added to this about a year later through a huge spike in energy prices.

Now, we seem to be heading into another round of supply chain and energy issues. They can cause another inflation shock, carrying the potential of being worse than the first one. Moreover, the “victory over inflation” was achieved with very questionable means.

Emptying the reserves = victory?