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The Shifting Shortages Narrative and What it Means for Inflation

Originally published on State Street Insights by Michael Metcalfe and Gideon Ozik

December 2, 2021

The persistence of supply constraints, perhaps along with the resilience of asset market prices, has been one of the big surprises of 2021. As Alberto Cavallo’s has recent research noted noted, these disruptions have had a clear impact on inflation. In theory, however, markets should eventually clear and bottlenecks ease. But as Powell’s recent abandonment of the Fed’s transitory inflation narrative testifies, this cannot be taken for granted. Inflation is now a clear policy concern and to the extent that it may be driven by supply shortages, perhaps stagflation will become a challenge too. This piece leverages MediaStats’ ability to look at a range of media coverage from the financial press to corporate communications to gauge how and where the shortages narrative is evolving. There is evidence that some shortages are beginning to ease, or at least are not getting worse. However, digging into the regional nuances of where shortages are occurring and also what inputs are now beginning to experience shortages, speaks to a potential stickiness in the narrative, that has implications for both inflation, the policy response and potentially stagflation risks.

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The shifting shortages narrative and inflation
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