Only a few months ago, we heard that inflation was not a problem, that it would be a transitory condition at worst. We are now hearing from the Federal Reserve that inflation is a point of concern that requires significant action. Monetary authorities went very quickly from no big deal to we must act now.
We have also seen supply-chain explanations of why inflation has been rising lately. This explanation relates to long lines of containers waiting to be allowed to unload their cargo in ports, labor shortages, and a shortage of critical inputs such as chips needed to manufacture cars, among other things. Does the supply-chain explanation hold water? While a first look at the argument seems to make some sense, closer inspection suggests that this issue may not play a major role in a scenario of permanent inflation. Once again, inflation appears to be related to monetary policy.